Pfizer Is Down 34% Over the Last 5 Years. Here's Why Its 6% Dividend Yield Might Finally Be Worth the Risk.

If you've been looking for high-yield stocks, Pfizer (NYSE: PFE) may have crossed your radar screen. As shares of the pharma giant slipped over the past few years, its dividend yield marched higher, and in recent times, settled at 6%.

High dividend yields are great, but the pattern of a dividend yield rising as the stock price falls could be a warning sign. That's because a declining stock price may signal business troubles. This, in and of itself, is negative, but it also suggests that, if the financial situation is rough, the company may not be able to maintain its dividend.

In the case of Pfizer, the pharma giant has indeed faced difficult times over the past few years. Demand for its coronavirus products has been on the decline from early pandemic levels, and the company lost exclusivity on a number of blockbusters. The company launched a cost realignment plan, which was positive news, but such plans take time, and it's not guaranteed that the most important goals will be met.

So, you might not have rushed into Pfizer stock, even if you like high-dividend players. Now, here's why Pfizer's 6% dividend yield might finally be worth the risk.

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The Pfizer of the past

First, let's back up a bit and consider the Pfizer of a few years back. The company offers a broad portfolio of drugs across treatment areas, but it soared onto center stage thanks to its coronavirus vaccine and treatment. These products helped Pfizer reach a record of more than $100 billion in annual revenue back in 2022. But in the later days of the pandemic, as demand declined, the company's revenue fell significantly, and it became clear that the coronavirus portfolio wouldn't return to its earlier revenue levels.

Meanwhile, Pfizer was preparing to lose exclusivity on blockbusters including immunology drug Xeljanz and blood thinner Eliquis.

To combat these negative elements, Pfizer put into place a plan to realign costs with the revenue opportunity in the coronavirus space, and the company focused on pipeline development and growth through acquisition. Pfizer experienced its biggest wave of regulatory approvals over an 18-month period spanning 2023 and 2024. In 2023 alone, Pfizer won seven approvals across treatment areas.

Pfizer also completed the acquisition of oncology company Seagen in late 2023, a move that brought it four commercialized drugs and a fresh pipeline to potentially lead to future products. In the latest earnings call, Pfizer called the acquisitions of Seagen, cardiometabolic company Metsera, and migraine specialist Biohaven "transformative opportunities."

Pfizer's commitment to its dividend

As Pfizer began this transition into new drug launches and acquisitions and started to trim its costs, risk was high, and investors may have worried whether the company would even temporarily halt dividend payments. But in recent times, Pfizer has offered us reasons for optimism.

First, it's unlikely that the company will cut its dividend. In the recent earnings call, chief Albert Bourla, when asked about the possibility, said: "We feel extremely confident that we will -- even the most stretched scenarios that we are running, we will be able to maintain our dividend."

In the latest quarter, select recently launched and acquired products posted an 18% operational revenue gain, and the company lifted annual revenue guidance by $500 million at the midpoint to the range of $60.5 billion to $62.5 billion. The pharma powerhouse expects several trial readouts in the coming 12 months and says it's on track to return to growth as of 2029.

Pfizer shares have started to recover, delivering a 15% gain so far this year, and that's helped push valuation higher. Still, at 9.6x forward earnings estimates, the stock remains reasonably priced. Meanwhile, the company has expressed its commitment to rewarding shareholders with dividends, and continues to pay $1.72 per share, representing a yield of 6%.

Pfizer's progress along the recovery path and its focus on maintaining its dividend have significantly reduced risk for investors, making now a great time to get in on this high-yield player.

Adria Cimino 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.