Pfizer (PFE 1.19%) is deeply unloved, down more than 50% from its late 2021 high. The stock decline has driven the dividend yield up to a very high 6.8%, well above the pharmaceutical stock average of 1.6%. The company is facing headwinds, which are clearly worrying investors. But if you think in decades and not days, buying this out-of-favor drug maker could help create generational wealth. Here's what you need to know
Pfizer: Nothing special to see here
The big headline with Pfizer is that it will have to deal with revenue declines from drugs facing patent expirations over the next few years. That's normal, since new drugs are given a time-limited period during which they can be sold without facing generic competition. Once the patents expire, however, generic versions usually enter the market, and revenues from branded drugs decline sharply.
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This is why drug companies like Pfizer are always looking for new drug candidates, whether through internal R&D or acquisitions. The problem is that patent expirations happen on a set schedule, but drug development does not. Pfizer doesn't currently have anything new to replace the drugs it has that are losing patent protection.
Pfizer has a long history of success
The fact that investors are worried about Pfizer's situation isn't unreasonable. However, Pfizer is an over 100-year-old company and is highly respected in the healthcare sector. It has worked through difficult periods before. And the outlook isn't all bad. For example, after an internal GLP-1 weight-loss drug didn't pan out, the company quickly bought a company with a more attractive GLP-1 candidate. It also has several key drug trials scheduled for 2026.
NYSE: PFE
Key Data Points
The company is doing what it is supposed to do; it's just that the new drugs aren't expected to arrive in time to offset the hit from patent expirations. That's likely to put some stress on the dividend, noting that the payout ratio is already over 100%. Still, management seems willing to support the dividend over the near term as it works through this difficult stretch. Even if the dividend were cut, however, it would likely still be high relative to the average drug stock. And given the stock's decline, a dividend cut may already be priced in.
Turnarounds are long-term plays
All in, Pfizer is a turnaround story navigating typical industry headwinds. Given its long and successful history as a company, it is highly likely that it will muddle through this period and return to the growth path. And even if the dividend is cut, which management says isn't currently in the cards, the yield will likely still be sizable. If you think in decades and not days, buying Pfizer could set you up for a generous income stream and capital appreciation. And it is the type of industry-leading company that you'll be happy to pass on to your heirs.
