Pfizer's Net Income Drops in Q1. Is Its Dividend Still Safe?

One of the best reasons to invest in Pfizer (NYSE: PFE) stock right now is for its dividend, which yields a mouth-watering rate of 6.7%. That's considerably higher than the lowly S&P 500 average of just 1.1%. To put that in terms of dollars, a $25,000 investment in Pfizer stock could generate nearly $1,700 in annual dividend income (versus less than $300 if you went with the average S&P 500 stock).

Thus, the incentive for income investors to buy Pfizer stock is high. But others will argue that so too is the risk. And those fears may be heightened after the company posted its most recent earnings numbers, with net income falling from the previous year. Is Pfizer's dividend in danger, or does this still look like a compelling income investment?

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Pfizer's earnings fell by 9% last quarter

Earlier this month, Pfizer released its first-quarter 2026 results. And while its revenue looked encouraging, rising 5% year over year, the company's net income fell 9%. And on an adjusted basis, its income was down even more -- by 18%. If a company's earnings deteriorate, then that could put its prospects of paying a dividend in jeopardy, which is why dividend investors may be alarmed by its latest earnings report.

There are two key numbers to focus on for dividend investors: earnings per share (EPS) and free cash flow. These numbers can help assess whether Pfizer's financials are strong enough to support its payout.

Last quarter, Pfizer's EPS was $0.47, which is slightly higher than its quarterly dividend of $0.43. However, that would mean it's paying out more than 91% of its earnings as dividends. Its free cash flow during the period was $2.2 billion, which is less than the $2.4 billion it pays in dividends every quarter. While cash flow can fluctuate over time, it's nonetheless a concerning sign for investors.

Is a dividend cut inevitable for Pfizer?

Pfizer maintains committed to the dividend and, for now, has not appeared to have signaled that a change is forthcoming. The healthcare company has been busy with acquisitions in recent years, and so while its payout ratio is high, as it cuts more costs and reduces redundancies and takes advantage of synergies, its dividend may begin to look more sustainable. I don't believe a dividend cut is inevitable for those reasons, but I also wouldn't rule out the possibility of one taking place if its financials don't significantly improve and it continues to pursue acquisitions.

If you do invest in Pfizer for its dividend, you may want to watch the stock and monitor its financial results closely, because the payout is a bit risky.

David Jagielski, CPA 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.