Shares of Pfizer (PFE +0.43%) have fallen 55% from their late 2021 high. That decline highlights a material change in Wall Street's view of the pharmaceutical giant. And it has pushed the dividend yield up to a lofty 6.3%. Is the dividend actually sustainable? Here's what you need to know.
What's wrong with Pfizer?
There's actually nothing unusual going on with Pfizer's pharmaceutical business. The industry is highly competitive, capital-intensive, and driven by innovation. Unfortunately, research and development outcomes aren't predictable. Sometimes things don't work out as well as planned.
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That's one big knock against the company today, given that its internally developed GLP-1 weight-loss drug candidate had to be abandoned. GLP-1 drugs are the hot topic on Wall Street, and Pfizer isn't even in the game yet.
The negative investor sentiment surrounding Pfizer's GLP-1 situation added to the vaccine issues the company was already facing. Part of a stock price rally up until late 2021 was driven by investors excited by the company's COVID vaccine opportunity. While vaccine sales were very strong for a short period, the long-term opportunity proved less robust than expected, and they haven't been a strong point for Pfizer.
There are very good reasons for investors to be downbeat about Pfizer right now. However, the deep drawdown in the stock is really a mix of current pessimism following what now appears to be too much enthusiasm. Pfizer, with a $155 billion market cap, is still a large and innovative healthcare giant.
Pfizer is investing for the future
As noted, you can't predict research outcomes. But given Pfizer's long and successful history, it seems highly likely that it will eventually develop new and innovative drugs. Notably, it quickly shifted gears in the GLP-1 space, buying a company with an attractive GLP-1 drug candidate and partnering with another company to distribute its GLP-1 drug if it gets approved. It is also pushing forward with oncology and migraine drugs, since weight-loss is only one of the many areas on which the company is focused.
Meanwhile, the company is being very clear about the dividend. Pfizer's full-year 2025 earnings call presentation includes a forward-looking slide that prominently states a long-term goal of maintaining the dividend.
NYSE: PFE
Key Data Points
There's just one small wrinkle here. The trailing 12-month dividend payout ratio ended 2025 at 126%. That's normally a warning sign for dividend investors, but you have to take it with a grain of salt. Dividends are paid out of cash flows, not earnings. The cash dividend payout ratio is a bit lower at 107%. That's clearly still over 100%, which is a problem. However, companies can support a dividend by increasing debt over short periods.
The real question is the dedication of the company's board of directors to maintaining the dividend. There's no way to know about that commitment, but given management's strong statement on the dividend, it seems likely the board isn't considering cutting the payment any time soon.
There's always a risk
The average pharmaceutical stock yields 1.7%. It is very clear that Pfizer's yield is multiples of that because there's a risk that its dividend could be cut. A quick examination of the payout ratio is ample proof of that risk. And the company's recent business results aren't supportive, either. And yet, Pfizer remains a large and innovative company that continues to focus on developing new drugs.
It seems highly likely that Pfizer gets back on track. And given management's current statements about backing the dividend, more aggressive dividend investors should probably feel reasonably confident that the dividend will be supported until the company's research efforts start to pay off.
