Looking for income? You might want to check out Pfizer (PFE 0.33%). This big drugmaker has been a favorite for income investors for years. However, its dividend is arguably more attractive than ever. At this writing, the forward dividend yield stands at a mouthwatering 7.52%.
The more you invest in Pfizer, the more income you can make. How many shares of Pfizer should you own to make $10,000 in annual dividend income?
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Doing the math
To figure out how many shares you'd need, let's start with the company's quarterly dividend payment of $0.43 per share. Multiplying that amount by 4 gives us an annualized dividend of $1.72 per share. With that number in hand, we only need to divide the desired $10,000 by $1.72 per share to calculate the number of shares required. The result comes to 5,813.95 shares.
Most of us would round that number up to 5,814. If you really want to get exactly $10,000 in annual dividend income, though, you could use fractional shares.
At Pfizer's share price at the time of this writing ($22.87), you'd need to invest roughly $132,966 to generate $10,000 in income. Putting such a steep amount in only one stock would only be advisable if you have a large portfolio with enough additional money to buy enough other stocks to be well diversified.
A shifting target
Keep in mind that the number of Pfizer shares you need to own to make $10,000 in dividend income could be a shifting target. Why? The quarterly dividend payment could change.
For example, Pfizer announced a dividend increase of $0.01 per share in December 2024. This marked the company's 16th consecutive dividend hike. It's possible that Pfizer will continue to increase its dividend. The drugmaker's management regularly confirms its commitment to maintaining and growing the dividend.
What about the possibility of a dividend cut? Pfizer's dividend payout ratio of 122.5% might look concerning. No company can pay more in dividends than it makes in earnings indefinitely.
The good news is that Pfizer is generating sufficient free cash flow to fund the dividend at current levels. I's also making cost reductions that should bolster free cash flow.
Granted, the company faces the loss of exclusivity for several key products over the next few years. These patent expirations could weigh on free cash flow and potentially put pressure on Pfizer's ability to pay its dividend. On the other hand, the drugmaker has multiple rising stars in its lineup, along with a promising pipeline.
All things considered, I think that the chances that Pfizer will increase its dividend payout are better than the odds that it cuts the dividend. If I'm right, this means that the number of Pfizer shares needed to make $10,000 in annual income will be somewhat lower than 5,814 in the future.
Is Pfizer a good pick for income investors?
For any stock to be a good choice for income investors, it should offer an attractive dividend that's reliable. Ideally, the stock should also have a reasonable valuation relative to its growth prospects.
Pfizer clearly has an attractive dividend with a juicy yield. The company has a good track record of dividend increases with a management that prioritizes dividend growth. It should be able to fund the dividend at least at current levels for a while.
The drugmaker's forward price-to-earnings ratio was recently 7.9, well below the average forward earnings multiple of 16.1 for the S&P 500 healthcare sector. Pfizer's price-to-earnings-to-growth (PEG) ratio, which is based on analysts' five-year earnings growth projections, is a super-low 0.6.
I believe Pfizer checks off all the boxes to be a good pick for income investors. And if you have nearly $133,000 to spare, this pharma stock could make you $10,000 in annual dividend income.
