This Flying-Under-the-Radar Pharma Stock Pays Nearly 7% (While Everyone's Sleeping)
Key Points
The end of a short-lived, COVID-related revenue surge has brought Pfizer's stock lower.
But sellers have ignored all the developmental work this pharma icon has going on.
At the very least, the drug stock’s current dividend payment is well protected.
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The average blue chip dividend stock's current yield is somewhere in the ballpark of 3% to 4%. Therefore, to see one paying out nearly 7% of its value is as suspicious as it is impressive.
When the underlying dividend is being paid out by a pharmaceutical powerhouse like Pfizer (NYSE: PFE), however, it's the real (but underestimated) deal. This company has not only paid a quarterly dividend like clockwork for decades now, but has raised its annualized per-share dividend payment for 16 consecutive years.
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What gives? In short, Pfizer's stock has performed poorly since the wind-down of the COVID-19 pandemic, which ended demand for its coronavirus vaccine as well as its antiviral drug Paxlovid. The drugmaker's annual top line is now roughly 40% below 2022's peak of a little more than $100 billion, for perspective. The market's priced in this revenue decline pretty aggressively -- perhaps too aggressively, in fact.
While Pfizer's research and development work was certainly delayed by the COVID-19 contagion, leveraging its 2023 acquisition of Seagen, the company hopes to have at least eight new blockbuster drugs -- drugs that produce $1 billion or more in annual sales -- in its portfolio by 2030. There could be more new drugs than this, of course, with many of them capable of generating well in excess of $1 billion worth of annual revenue.
Indeed, Pfizer ultimately expects on the order of $20 billion and $25 billion worth of new revenue to be added between now and then, supporting continued dividend growth.
Image source: Getty Images.
There's still risk here to be sure. Much can change with its R&D efforts in the meantime, for instance, just as much can change for the pharmaceutical industry. With such a sizable yield, though, the bulk of this risk already appears to be priced in.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
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