The toll from the COVID-19 pandemic has been brutal for any pharmaceutical stock. Pfizer (NYSE: PFE) No exception. As a vaccine maker, Pfizer has faced headwinds to growth over the past few years. Now, the changing of the guard among U.S. regulators could become more challenging, which has scared investors away from the stock.
However, Pfizer remains highly profitable, with a dividend yield of 6.5%, one of the highest in history. Down 57% from its all-time high, is now the best time for dividend investors to buy this pharmaceutical giant?
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With Pfizer making up for lost revenue from its COVID-19 vaccine, investors may have thought they were out of the woods. It made a large acquisition of Seagen, a stable developer of targeted cancer treatments.
But then, the U.S. government came knocking. With the new authorization, the United States hopes to lower drug prices in its domestic market. This will change the dynamics of an industry where medicines are often much more expensive domestically, exacerbating international price discounts. Most pharmaceutical giants were hit by the news, with Pfizer factoring in a revenue decline in 2026.
This caused Pfizer’s stock price to fall and could distract investors from the overall business and the long-term opportunities in the pharmaceutical industry. The company has a lot going for it, including its recent acquisition of an obesity drugmaker and the growth of its oncology portfolio following its acquisition of Seagen. Of course, the company will face some patent expirations in the coming years, but that’s normal for the pharmaceutical industry, as research needs to be reinvested every year to keep the pipeline strong. By 2025, the company will spend more than $10 billion on internal research.
Pfizer currently trades at a forward price-to-earnings (P/E) ratio below 10 and has a dividend yield of 6.5%. With positive free cash flow, Pfizer will likely be able to maintain this dividend payment while paying down the debt associated with the Seagen acquisition.
The question for investors is whether Pfizer can sustain dividend growth over the long term. Historically, the company has been able to do this by expanding its drug portfolio both internally and through acquisitions. Although hampered by new U.S. government policies, I believe Pfizer can continue to do so if it expands its cancer drug portfolio and successfully enters the obesity drug market.
