Pfizer Inc. (PFE, Financial) is a stock that has been a dividend and value investing staple. It has been ubiquitous in my over 25-year financial services career. Whenever I meet with a dividend-seeking, conservative stock-picking investor for the first time, I am surprised when I do not see Pfizer in their portfolios. That is not an endorsement, just an observation of fact.
But despite its familiar name and storied history, Pfizer should be treated like all stocks, which means regular revaluation and assessment for appropriate expectations of future performance. Can we expect Pfizer to provide what is expected of it, as is perceived due to the historical nature of the stock? Let’s see.
The drug industry is a staple of dividend and value portfolios because of the demand for the products the industry produces. The state of the economy is irrelevant. People need what companies like Pfizer produce in all economic environments. Within the industry, Pfizer has premier economies of scale and a deep backlist of drugs and more to come in its pipeline.
Accordingly, Pfizer may continue to provide what it needs to remain an A-list consideration, if not a must-own, for the dividend-seeking, value investing crowd.
Pfizer recently announced a greater than 6% increase for its dividend. Shareholders will now receive 34 cents per share, which means a 3.6% annualized dividend yield. That is good news and another reason Pfizer is so ubiquitous. Pfizer has been paying dividends every quarter for decades.
Pfizer also announced a new $10 billion share repurchase program has been authorized in addition to the $6.4 billion remaining under the current authorization. This is also good since buybacks suggest the company is confident and is willing to prove it by investing in shares of its own stock, which in turn can drive the share price higher via the company’s purchases and by stimulating investment from individuals and other institutions. Actions like this emphasize Pfizer’s commitment to its shareholders and its determination to return value to shareholders.
Pfizer has some new drugs in the works, but there is not much on the immediate horizon to provide any boost to the stock price. Research and development is perennial at Pfizer. The company has nearly 100 new drugs in the works, but the existing portfolio is contributing. Highlights from the 2017 drug portfolio include a 9% increase in annualized sales of Lyrica to $4.5 billion, a 61% increase to $3.12 billion in annualized sales of Ibrance and similar increases for blood thinner Eliquis (up 48%) and rheumatoid arthritis drug Xeljanz (up 44%).
The recently passed Republican tax bill should provide a boost to Pfizer in 2018. With the bill reducing corporate tax rates and repealing the 20% corporate alternative minimum tax, companies like Pfizer with sizable foreign business operations will be able to repatriate that income at significantly lower tax rates.
For Pfizer, this should mean hundreds of millions of dollars in savings which can be used to further increase shareholder value, keep up its aggressive research and development activities and search for acquisitions.
Pfizer is not without challenges. Some drugs in its portfolio are seeing sales decline while its previously mentioned pipeline has impressive fruit to bear, but little of which will be ripe enough to pick for a while. Even with some drugs and the expected benefits of the tax bill, it is advisable to maintain a cautious respect for the stock.
Investors seeking a big pharma bellwether with an impressive history, a commitment to shareholders and a future expected to be no worse than the same, with a 3.6% dividend yield, will do fine by holding Pfizer in their portfolio. Just do not expect big things. A breakout in share price, in either direction, will come from the unexpected, so do not expect it. Pfizer is a buy-and-hold stock. It is still and should remain a top choice among dividend-producing, big pharma, conservative stocks.
Disclosure: The author owns none of the stocks discussed in this article.
