Finance
Why I’m Buying This Beaten, High-Yield Dividend Stock, Hand-Handed
I owned shares of Pfizer (NYSE:PFE) when the COVID-19 pandemic began. It’s been nice to see the stock rise more than 60% in about two years. It wasn’t much fun seeing Pfizer’s stock price drop nearly 60% from its peak.
Have I been tempted to sell during this big drop? No. Instead, I’m buying these beat-down, high-yield dividend stocks hand over fist.
Through the dark clouds
It’s understandable why Pfizer shares have fallen so much. The drugmaker has faced some big challenges and more are on the way.
Pfizer’s sales fell 42% in 2023 compared to the previous year. Sales of the company’s best-selling product, the COVID-19 vaccine Comirnaty, fell 70% year over year. Sales of Pfizer’s COVID-19 pill Paxlovid fell 93%. Ouch.
Those COVID woes weren’t Pfizer’s only problem areas. Sales of six of the company’s cancer drugs, which generate $180 million or more annually, fell by double digits. Sales for Pfizer’s best-selling cancer therapy, Ibrance, fell 7% year over year in 2023.
To make matters worse, key US patents for seven Pfizer products expire in 2027. blockbusters last year.
So why am I buying Pfizer stock? I see the sun shining through the dark clouds. I’ve seen the tremendous productivity of the company’s pipeline in recent years, with a record number of Federal Drug Administration (FDA) approvals in 2023. I’ve also seen how Pfizer used the massive cash supply built up during the peak period of COVID to siphon off cash from several smaller drugmakers. These deals have significantly strengthened the company’s pipeline.
The numbers look good
The way I see it, Pfizer’s numbers look very good. Let’s start with the rating. The stock is trading at a future price-earnings ratio of less than 11.5. Compared to the S&P500With an earnings multiple of 20.5, Pfizer is dirt cheap.
Admittedly, this valuation metric is useless if Pfizer’s revenues and profits continue to decline. However, I don’t think that will happen. This year should be the low point for the company’s COVID-19 product sales. Pfizer expects that new products and indications will generate enough additional revenue to offset the impact of upcoming patent expirations and then some. Analysts are slightly less optimistic, but still expect that a large part of the sales loss due to the patent cliff will be compensated by new products.
Another figure that appeals to me is Pfizer’s dividend yield of over 6.5%. The major pharmaceutical company’s stock price doesn’t need to grow much for the stock to deliver double-digit total returns.
That brings me to the third number that looks good for Pfizer: the roughly $25 billion in new annual revenue the company expects by 2030 from business development deals. This estimate seems feasible in my opinion, given the new products and pipeline candidates Pfizer has as a result of its acquisitions of Seagen, Arena, Biohaven, and Global Blood Therapeutics. I suspect that the business development will allow the company to grow its sales and profits by at least the 3.5% per year needed for an average annual total return of 10%.
Preparing myself for later
I plan to reinvest any dividends from Pfizer in the coming years. If I buy more shares now, I could retire later.
Pfizer’s dividend generates solid income at current levels. I expect the company to increase its dividend over time. That seems like a good choice, as Pfizer management sees dividend growth as a top priority.
What to do with a stock that can deliver double-digit total returns and be an excellent part of a long-term retirement strategy? My answer is to buy it hand over fist.
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Keith Speights has positions in Pfizer. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool has one disclosure policy.
Why I’m Buying This Beaten, High-Yield Dividend Stock, Hand-Handed was originally published by The Motley Fool
