Investments don't need to make you rich overnight to make you a bit richer, and the longer you hold stocks that make you richer every quarter, the further you'll get along the road to having wealth.
On that note, Pfizer (PFE +0.09%) has a habit of making its investors wealthier via its dividends and share repurchasing activity, and there's no reason to suspect that'll change through at least 2030. Here's why.
NYSE: PFE
Key Data Points
Pfizer has got a packed pipeline of programs
If you invested $5,000 in Pfizer a decade ago, right now you'd be happy to see that its total return in that period was around $10,900. In the next 10 years, there's no guarantee that it'll repeat that exact performance, but there are reasons to believe that it'll still be a good stock to own for the purposes of collecting its dividend and perhaps also experiencing share price appreciation over the long run.
In particular, Pfizer's biggest driver of revenue is the power and scale of its drug development pipeline. Sales from Pfizer's massive portfolio of approved medicines are the whole reason why it generated more than $26 billion in free cash flow (FCF) for 2022 alone. Between 2023 and the end of 2024, it could be commercializing as many as 19 new medicines or indications for its already marketed products.
After 2024, it's likely to launch at least another 12 of its programs, with the potential for even more thanks to its plan to buy Seagen (SGEN +0.00%), an oncology drug developer that it aims to purchase for $43 billion.
For its part, Seagen has 31 programs in clinical development, and those will be worthy additions to Pfizer's pipeline of 110 programs in total. Many of those programs will likely become commercialized and drive more revenue growth. By 2030, management thinks the programs from Seagen could be bringing in as much as $10 billion annually, with more to come in the years that follow.
NASDAQ: SGEN
Key Data Points
In sum, the fact that Pfizer's pipeline is packed with programs in all phases of clinical trials is a massive argument in favor of its continued success, as it has so many different irons in the fire that it won't matter much if a few fail to pan out. And the Seagen purchase only makes its pipeline even more massive than before.
There's a good reason for the current bargain price
At present, Pfizer has one big headwind that is depressing its valuation despite its exciting new acquisition and long growth runway. Whereas sales of its Comirnaty jab for coronavirus and its Paxlovid antiviral pill for coronavirus were respectively worth $37.8 billion and $18.9 billion in 2022, the pandemic is relatively more controlled than before, and revenue from both products is widely expected to crater in 2023 and 2024.
What's more, management estimates that the company's top line might be worth only $84 billion by 2030. It's also anticipating losses of around $17 billion in sales from expirations of the exclusivity protections of some of its drugs between 2025 and 2030. That explains why the market is so sour on Pfizer's stock recently, and it indicates that the next few years could be challenging.
But this coming period is also an incredible opportunity for an investment at a discount. In terms of Pfizer's valuation, right now its price-to-earnings (P/E) ratio is 7.5. On average, the biopharma industry's P/E is 18.7, and the average P/E of the overall market is 20.7. The market has likely fully priced in the fallout from losses in its coronavirus segment, but it has yet to price in everything that the business will do in the coming years, as it's impossible to predict the future with perfect accuracy.
That means investors who buy the stock right now get their shares far cheaper than other pharma businesses. These could be much smaller or less experienced in the drug development process than Pfizer, as well as far cheaper than other large public businesses in general, many of which are facing economic headwinds that are far more severe.
While it's true that its top line might not reach 2022's heights for quite some time, if you're interested in holding Pfizer's shares for the steady dividend payout, there's no reason to think that matters. The drug development engine will continue to churn out new medicines for many years to come.
In addition, over the last 10 years, its dividend grew by 70.8%, and it didn't have the benefit of intense interest and wild revenue due to its coronavirus medicines for the majority of that time. It's highly likely that Pfizer will continue to hike its payout for as long as it's sustainable to do so, and with a payout ratio of only around 29%, it's nowhere near the ceiling. In addition, its forward dividend yield of 4.1% is pretty attractive.
So if you're interested in picking up a relatively stable income stream without taking a big risk, it's worth considering an investment here. Just be aware that Pfizer's growth trajectory is unlikely to make it outperform the market for multiple years in a row this decade, and that the near term could be a bit of a bumpy ride in terms of its share price.
