High-quality dividend stocks are normally a great addition to any portfolio regardless of market conditions. However, this exceedingly risk-averse market has punished even elite dividend-paying stocks for relatively minor setbacks.
Big pharma stalwart Pfizer (PFE 0.40%) is a prime example. The drugmaker's shares have fallen by nearly 24% this year due largely to declining demand for the COVID-19 vaccine Comirnaty and the anti-viral treatment Paxlovid.
Upcoming patent losses haven't helped matters, either. Over the course of 2025 to 2030, Pfizer is expected to lose market exclusivity for the blood thinner Eliquis, kidney cancer drug Inlyta, breast cancer treatment Ibrance, anti-inflammatory medicine Xeljanz, prostate cancer therapy Xtandi, and cardiomyopathy of wild-type or hereditary transthyretin-mediated amyloidosis medicine Vyndaqel/Vyndamax.
There is a strong case to be made that this bearish argument may be wildly overstated, however. Speaking to this point, the pharma giant's shares are now trading at a bargain-basement earnings yield of 8.6%. Pfizer's stock is thus incredibly cheap compared to both its big pharma peer group (average earnings yield of 7%), as well as the 10-year U.S. Treasury note (a so-called "risk-free asset").
Moreover, this steady decline in Pfizer's share price has resulted in the company paying an annualized dividend yield of approximately 4.2%. That's among the highest yields within the large-cap healthcare space, and it is considerably richer than the 1.66% average yield among S&P 500-listed stocks.
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Is this out-of-favor, high-yield dividend stock a screaming buy after its latest earnings report? Let's take a closer look at Pfizer's Q1 2023 financials to find out.
Pfizer's first-quarter earnings paint an encouraging picture
At first glance, Pfizer's Q1 report seems to support the bearish investing thesis. The sharp drop in demand for COVID-19 products resulted in a staggering 26% decline in revenue for the quarter on an operational basis, relative to the same period a year ago. Admittedly, that's not a welcome development in a market that is laser focused on revenue growth and earnings power.
Matter of fact, the first few pages of this earnings release are uncomfortable reading for the stock's bulls and shareholders. On a year-over-year basis, oncology sales dipped by a modest 1% due mainly to weakness in its Ibrance franchise, global Xeljanz sales plunged by 33%, and a fair amount of the growth the drugmaker did book in primary and specialty care came from products poised to lose exclusivity later this decade (Eliquis and Vyndaqel).
The green shoots in this Q1 report don't really become evident until the company begins to unpack its recent business development (BD) activities. Since 2022, Pfizer has spent approximately $70 billion on BD in an effort to generate a 10% compound annual growth rate in terms of revenue over the course of 2025 to 2030.
Highlights of the company's recent BD splurge include the acquisition of cancer drugmaker Seagen (NASDAQ: SGEN), the takeover of the respiratory syncytial virus (RSV) drug developer ReViral, and the buyout of the migraine-oriented pharma company Biohaven. What's more, Pfizer's management team noted that additional tuck-in acquisitions are also a possibility, although the size of these deals will likely be on the smaller side as the company works toward deleveraging its balance sheet.
In addition to BD, Pfizer spotlighted the expected commercial launch of a host of high-value products in the second half of 2023. Specifically, the company believes non-COVID product sales will rise substantially in the back half of the year due to new product launches in cancer, RSV, immunology, among others.
Is Pfizer's stock a buy?
On the plus side, Pfizer's stock is both exceptionally cheap from an earnings yield standpoint and its dividend yield is near a multiyear high right now. The core reason for the drugmaker's ultra-cheap valuation and sky-high yield is that investors simply haven't been willing to accept the risk associated with Pfizer's post-2025 growth plan.
After all, this strategic plan is dependent on several highly uncertain events, such as clinical trial wins, regulatory approvals, and the market adoption of newly approved products. The bottom line is that deep value has largely been zeroed out by investors in this bearish market, which has hurt companies in the middle of major transitions like Pfizer.
So, the question becomes whether Pfizer deserves a leap of faith by investors? Based on the company's more recent operating history, the answer seems to be "yes." Pfizer has morphed into one of the most prolific drugmakers in the modern era, it has invested enormous resources into external and internal pipeline development, and it still has the cash to buy additional bolt-on revenue on an as-needed basis.
The caveat here is that Pfizer's stock probably won't be a winning play over the next two years. Until the pharma giant definitively proves that these recent BD deals and internal pipeline activities can overcome the dual headwinds of COVID-19 sales declines and key patent expirations, Pfizer's stock will likely continue to tread water.
There is an intriguing long-term opportunity for savvy investors, however. If Pfizer can indeed execute on its 2025-2030 growth plan, its shares ought to perform exceptionally well over this period. Meanwhile, investors can collect the drugmaker's massive dividend yield. That being said, Pfizer's stock doesn't quite jump off the page as a screaming buy post-Q1 earnings.
