Investors looking for sources of passive income to fuel their retirement dreams face a dilemma. Should you chase high yields from slow-growing businesses or invest in lower-yield providers with more predictable cash flows?
Lately, Pfizer (PFE -0.35%) and Prologis (PLD -0.34%) have been perfect examples of the trade-off between attractive yields and dividend growth. Pfizer offers a sky-high yield that's climbing slowly. Prologis offers a much lower yield, but it's been raising its payout at a remarkable pace.
Here's a closer look at both to help you decide which one fits your goals.
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Pfizer
Shares of Pfizer have fallen about 62% from their COVID-19 pandemic highs. The stock is way down, but the company has raised its payout every year since 2009. At its beaten-down price, this stock offers an eye-popping 7.3% dividend yield.
Pfizer's COVID-19 vaccine, Comirnaty, and antiviral treatment, Paxlovid, drove adjusted earnings up to $6.58 per share in 2022. Sinking demand for COVID-19 vaccines and treatments reduced adjusted earnings to just $3.11 per share last year.
In 2025, Pfizer expects a significant earnings contraction. At the midpoint of the guided range management provided this April, adjusted earnings are expected to fall by 6.8% this year. The $2.80 per share management expects at the low end of the guided range is more than enough to support a dividend payout currently set at an annualized $1.72 annually, but there could be further contractions ahead.
Eliquis is a next-generation blood thinner that Pfizer markets in collaboration with Bristol Myers Squibb. It's currently responsible for 14% of Pfizer's total revenue and is likely to lose ground to generic competition in the lucrative U.S. market in 2028.
Long before Eliquis loses ground to generic competition, the company's lead growth driver, Vyndaquel, could stumble. BridgeBio launched a competing treatment called Attruby in late 2024, and it's been exceeding expectations.
Pfizer's facing patent cliffs, but it also has one of the most productive development pipelines in the industry. Last year alone, the Food and Drug Administration issued more than a dozen approvals to new Pfizer treatments and several that are already on the market. With plenty of new products to market, the drugmaker has a good chance to continue its payout-raising streak in the decade ahead.
Prologis
As more folks do their shopping online, demand for warehouses that can support e-commerce has soared. By anticipating the demand, Prologis has become the world's largest real estate investment trust (REIT) that everyday investors can buy shares of.
Fear and uncertainty regarding the taxes businesses need to pay when importing goods to the U.S. have pressured the stock. It's down about 12% from a peak it set in March. At its beaten-down price, it offers a 3.7% yield.
Prologis has been able to raise its dividend by 11.7% annually over the past five years. At this pace, investors who buy at recent prices could begin receiving a double-digit yield on cost in less than a decade.
Amazon, Home Depot, and FedEx are Prologis' largest customers. These three tenants are responsible for only 8.2% of the rent payments Proligis receives every month. This high level of diversification is a big reason it can boast industry-leading credit ratings.
With an A2 rating from Moody's and an A rating from S&P Global, the weighted average interest rate on Prologis' outstanding debts was just 3.1% at the end of March. Acquiring and developing properties is an important part of this REIT's business, but it also acts as a lender. With an enviable credit rating, it can produce a strong profit while offering rates that its smaller competitors can't match.
For companies that own their warehouses, selling them to Prologis and leasing them back is often their lowest-cost source of capital. With the vast majority of the world's logistics real estate still owned by the companies that use it, Prologis could continue growing at a rapid pace for decades to come.
Pfizer offers a yield that's almost twice as high as Prologis's, but the pharmaceutical giant has been raising its payout at less than half the pace of the logistics REIT. Pfizer might be a good option for folks near retirement age. For income-seeking investors, though, Prologis seems like the better dividend stock to buy now.
