If you plan to live a long time on your dividend income, you'll need to invest in companies that are (at least) just as enduring as you are. And while most businesses have trouble remaining competitive over long timescales, there's at least one you've probably heard of that won't.
Pfizer (PFE -3.85%) is a great pick for dividend investors with a lot of patience and a desire for a moderate degree of stability. Here are just a few of the reasons why this pharmaceutical giant has what it takes to pay you every quarter, for life.
Why this stock is a must-buy
Pfizer is worth buying today for a few reasons, starting with the biggest development in its recent history: its plan to acquire Seagen (SGEN), which it announced on March 13. The deal will see Pfizer buy the oncology drug developer for $43 billion in cash generated from new debt, and Seagen's product portfolio is expected to deliver $2.2 billion this year, which will scale up to bring in around $10 billion in annual revenue by 2030.
Given that its guidance for 2023 calls for up to $71 billion in sales, the Seagen purchase will take some time to significantly boost the top line. But it will, and as it does, it'll make Pfizer into a leading oncology company.
For reference, the company's entire oncology portfolio brought in $12.1 billion in 2022, so the acquisition represents a near-doubling of its annual oncology segment before the end of the decade, even before accounting for the beneficial contributions of Pfizer's current oncology pipeline, which is sure to commercialize new medicines well before 2030. And aside from that, it'll be launching as many as four new medicines this year, depending on getting the go-ahead from regulators at the Food and Drug Administration (FDA).
At the same time, investors should recognize the nature of the biopharma's business requires constant innovation to develop new medicines. Those medicines may be successful for a time, like its coronavirus jab and its antiviral pill, before fading. So don't be too surprised when the company's top line falls from 2022's high point of over $100 billion now that coronavirus vaccine sales have slowed -- it's to be expected, and there will be other sources of growth on the way.
In a nutshell, the Seagen acquisition will likely become yet another example of why Pfizer is worth owning for the long term. No matter how large it grows, it'll remain dynamic when it comes to finding opportunities for further growth, and it's likely to keep passing some of the excess returns back to shareholders along the way.
Expect the dividend to stick around
Pfizer is a stock that'll pay you for life because it's consistently successful at being profitable over time, and there's nothing to suggest that'll change.
The stock currently has a forward dividend yield of 4.1%. Over the last 10 years, its payout per share grew annually by an average of around 6.1%. That might not seem like much, but over the long term, such hikes add up significantly for shareholders. And because Pfizer's payout ratio is only around 29%, it can afford to keep disbursing its dividend and increasing its size for quite some time, even in the absence of earnings growth.
The company was last forced to slash its dividend in 2009, though it more or less started hiking it again immediately after. So even if there's another major financial crisis, investors can count on having a long-term income stream, with the understanding that the financial impacts of bumps in the road are likely to get smoothed over in due time.
The main caveat with buying Pfizer today is that its stock price performance might not beat the market most of the time. Plus, due to the headwinds for its coronavirus products, 2023 does not look all that rosy, and 2024 might see revenue fall again.
Still, if your time horizon is long enough, the next couple of years won't matter, and buying it now, when everyone is expecting its top line to contract, means getting the advantage of a hype-free valuation that could pay off in due time.
