The wealth-building power of compound interest will never cease to amaze me. It's a story of patience and attention to detail, where small, short-term differences add up to massive divergence over decades. And in the end, the biggest winners don't always deliver the fattest share-price returns.
Biopharma giant Pfizer (NYSE:PFE) just reported a disappointing first quarter. Pfizer share prices fell as much as 4.8% on a generally flat market day, making the stock the worst performer on the Dow Jones Industrial Average (DJINDICES:^DJI) today -- by a long shot. The company missed Wall Street's revenue and earnings targets as key products started falling out of patent protection
But Pfizer's stock still trades less than 6% below recently set all-time highs, and management boosted dividend payments by 9% last quarter. The shares offer a meaty 3.3% dividend yield, even at these skyrocketing prices. And that dividend muscle is what turns Pfizer's proven cash machine into a market-crushing investment vehicle.
Reinvesting Pfizer's dividends is a winning strategy. That way, you put some serious distance between dividend-adjusted returns and the Dow's gains. Pfizer even beats the total return of fellow Dow member Merck (NYSE:MRK).
And here's why: Pfizer did slash dividend payouts in response to the 2008 and 2009 global economic crisis, but it has boosted its policy every year since then. Merck has provided just two dividend boosts in the last four years. All told, Pfizer's payouts have jumped 50% since the post-crisis rock bottom, while Merck's only gained 13%.
Not only that, but Pfizer's dividends still have more room to grow than Merck's. Both companies pocket a generous share of their free cash flows, but Pfizer uses a smaller portion of its cash for dividend payments. And unlike Merck's, Pfizer's cash funding never dried out, even at the height of that old crisis.
These are the details that make income investors sleep soundly at night with some Pfizer stock under their pillows. Don't let one disappointing quarter scare you away from this hulking generator and sharer of cash.
The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
More from The Motley Fool
Does a Strong Start Make 2018 a Sure Winner for Stocks?
Find out whether the so-called "January effect" is real.
Meet the 2018 Dogs of the Dow
Learn the basics of this simple dividend-investing strategy.
The Dow's Worst Day in 2017
Even with big gains, there were some scary times for the average.