Investing becomes an easier process the moment that you shift from a trading mindset to an ownership approach. That transformation begins when you realize that behind every stock ticker, there's a business in which shareholders have an ownership stake.
This stake indirectly entitles shareholders to a firm's profits. And more mature companies often share a portion of their profits directly with shareholders through the payment of a cash dividend. Pharmaceutical heavyweight Pfizer (PFE 0.81%) is one such business.
But is the stock a buy for investors searching for viable dividend income today? Let's dive into Pfizer's fundamentals and valuation to find out.
Plenty of non-COVID products are growing sales
Selling its products in more than 185 countries, Pfizer is a drugmaker with a truly global presence. Including its COVID-19 vaccine Comirnaty (co-owned with BioNTech) and COVID-19 antiviral therapy Paxlovid, the company has 10 platforms that are each on pace to post at least $1 billion in revenue in 2023. This robust brand portfolio has allowed Pfizer to reach a $203 billion market capitalization -- the seventh-largest among drug manufacturers.
| Pfizer's Top-Selling Brands | Revenue, First Half of 2023 |
|---|---|
| 1. Comirnaty | $4.442 billion |
| 2. Paxlovid | $4.212 billion |
| 3. Eliquis | $3.636 billion |
| 4. Prevnar franchise | $2.981 billion |
| 5. Ibrance | $2.391 billion |
| 6. Vyndaqel family | $1.468 billion |
| 7. Xeljanz | $706 million |
| 8. Xtandi | $564 million |
| 9. Inlyta | $521 million |
| 10. Sulperazon | $497 million |
Data source: Pfizer.
Understandably, Paxlovid and Comirnaty are now seeing sharp downturns in sales as the pandemic recedes -- plunging 98% and 83%, respectively, in the second quarter. For the period, the New York-based company recorded $12.7 billion in revenue, down 54.1% from a year ago. Adjusting for unfavorable foreign currency translation stemming from the strong U.S. dollar, revenue was still down 53% for the quarter.
But this precipitous drop in Pfizer's revenue isn't reflective of its true potential. Non-COVID operational revenue rose by 5%. That result was driven by double-digit revenue growth from rare-heart-disease franchise Vyndaqel, and single-digit revenue growth from blood thinner Eliquis (co-owned with Bristol Myers Squibb) and prostate-cancer therapy Xtandi.
Still, the bottom line lately hasn't been rosy. Pfizer's non-GAAP (adjusted) diluted earnings per share (EPS) fell 67.2% over the year-ago period, to $0.67 in the second quarter. Plus, the company's slower decrease in costs and expenses than revenue led to a drop of 1,190 basis points in non-GAAP net margin, to 30.1% for the quarter. This explains how Pfizer's adjusted diluted EPS dropped at a faster rate than revenue during the quarter.
Image source: Getty Images.
A pipeline for rebuilding growth
It's clear that Pfizer will need to once again adapt to achieve future business growth. The good news is that with 33 of the 90 projects in its pipeline in either phase 3 clinical trials or the commercial registration phase of development, impactful product launches are on the way. These include the upcoming launches of its respiratory syncytial virus (RSV) vaccine Abrysvo, blood-cancer therapy elranatamab, and immunology drug etrasimod.
A secure, market-tripling dividend
The 1.5% dividend yield of the S&P 500 index is dwarfed by Pfizer's sizable 4.6% yield. And unlike those of some higher yielders, the company's payout looks to be safe. This is because even with its temporary downturn in profits, Pfizer's dividend payout ratio is positioned to register at just 50% in 2023. That leaves the company with the cushion needed to keep raising the dividend, strengthening its pipeline through acquisitions, and repaying debt.
The stock has a margin of safety
The market has not been kind to the rebuild Pfizer is currently undergoing, sending shares 30% lower so far in 2023. But with the stock taking such a beating in recent months, now could be the time for income investors to pounce.
Analysts have an average 12-month share price target of $44, which is a big upside from the current $36 share price. Considering that Pfizer's forward price-to-earnings (P/E) ratio of 10.7 is well below the drug manufacturer industry's average of 13.8, this could materialize if new product launches do as well as expected.
