When a company's revenue and earnings plunge, it's understandable if investors begin to worry about its dividend. Pfizer (PFE +1.24%) reported a 53% year-over-year decline in revenue in its latest quarter. The big drugmaker's earnings sank by 77%.
There's also the fact that Pfizer is about to face a patent cliff that could further erode its profits. Key blockbuster products including Eliquis, Ibrance, Xeljanz, and Vyndaqel lose patent exclusivity within the next few years. Pfizer anticipates these losses of exclusivity will negatively impact its annual revenue by roughly $17 billion per year by 2030.
So should investors worry about Pfizer's dividend, which currently yields nearly 4.6%? I don't think so. Here's why Pfizer's high-yield dividend could be safer than you might think.
NYSE: PFE
Key Data Points
A wave of new product launches
Pfizer projects that its new product launches through the first half of 2024 will generate around $20 billion in additional revenue by 2030. That's enough to more than offset the impact of its patent cliff. And this wave of new product launches is largely derisked.
For example, Pfizer's new alopecia areata drug Litfulo launched this year. So did new respiratory syncytial virus (RSV) vaccine Abrysvo. The company also launched new indications for several of its already-approved products, including Cibinqo in treating atopic dermatitis in adolescents.
More potential launches could be on the way soon. Pfizer just won accelerated approval for likely blockbuster drug Elxrexfio in treating multiple myeloma. It expects to land U.S. regulatory approval for etrasimod in treating ulcerative colitis in the third quarter of 2023. Additional regulatory approvals for other products could be in store before the end of the year.
Wheeling and dealing will pay off
None of those product launches are connected to Pfizer's business development activity. The company's wheeling and dealing could add another $25 billion in revenue by 2030.
Pfizer's pending acquisition of Seagen should account for a big part of that total. The transaction is expected to close in late 2023 or early 2024. It could boost Pfizer's revenue by more than $10 billion with the addition of Seagen's cancer drugs Adcetris, Padcev, and Tivdak.
Several other acquisitions that have already been finalized could together generate around $10.5 billion in additional revenue for Pfizer by 2030. These include Pfizer's purchases of Arena Pharmaceuticals, Biohaven, and Global Blood Therapeutics.
Pfizer still has some work to do to close additional deals to get to its target $25 billion in new revenue. However, the company has plenty of financial flexibility to make it happen. It finished the second quarter with cash, cash equivalents, and short-term investments totaling nearly $44.8 billion.
Some uncertainties
To be sure, Pfizer faces some uncertainties. The company's new products and new indications could miss sales targets. Its business development deals might not pay off as much as anticipated.
There's even more uncertainty on the COVID-19 front. Pfizer acknowledges that several variables will affect its future COVID sales, especially vaccination rates. On the other hand, it's possible that a successful launch of a combination COVID-flu vaccine could lead to sales that are better than expected.
I think that Pfizer's dividend, though, will remain solid for years to come. So does Pfizer. In the company's Q2 conference call, CFO David Denton talked about its strategy focusing on three pillars. The second pillar he mentioned was increasing the dividend over time. In my view, the biggest question regarding Pfizer's dividend is how much it will grow over the next few years.
