A Healthcare Stock With a 6%-Plus Yield: Is the Dividend Safe?

Although high dividend yields are attractive to income seekers, they can sometimes signal that the dividend is unsustainable and a payout cut is on the way. Is that where we are headed with Pfizer (NYSE: PFE)? The healthcare giant's poor stock market performance over the past few years has pushed its forward yield to a juicy 6.4%. But is the company's dividend safe?

Pfizer's rebound may have already started

Pfizer's revenue, earnings, and stock price dropped off a cliff due to its inability to sustain the incredible sales generated by its coronavirus business. However, over the trailing 12 months, the stock has climbed by a respectable 25%. Can the company maintain this momentum? There is a good chance it can. Here are two reasons why.

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First, equities have been highly volatile in recent weeks, partly due to geopolitical tensions. In this environment, blue chip dividend payers like Pfizer -- which also happens to belong to a defensive sector -- tend to attract even more investors than usual. Second, and perhaps more importantly, Pfizer currently has a deep phase 3 pipeline that could make significant progress over the next few years. The company launched 11 pivotal studies in 2025 and plans to launch 20 more this year.

True, Pfizer's pipeline and regulatory progress in recent years have not quite allowed it to turn things around. The difference is that some of the drugmaker's candidates that are now in late-stage studies look highly promising. Consider PF'4404, an investigational cancer medicine that belongs to a newer class of drugs. Pfizer sees this medicine as a potential pipeline-in-a-drug capable of earning indications across a range of many different cancers. If approved, PF'4404 could be a major growth driver for years to come.

Then there is Pfizer's weight management pipeline, spearheaded by MET097i. This therapy aced phase 2 studies and could differentiate itself from the current market leaders given its potential for once-monthly dosing and lower rates of adverse reactions.

Pfizer has other candidates beyond these two, but they appear to be the most promising. And if it can post strong phase 3 results for them, the company's shares will likely jump. Pfizer will face more headwinds in the medium term, including the loss of exclusivity for some products, such as its anticoagulant Eliquis.

Even so, over the past five years, the drugmaker has continued to boost its dividends despite the challenges it has faced. As Pfizer navigates this transition period and launches newer products that will drive sales growth as older ones fade into obscurity, the company is likely to maintain its dividend program intact. That's why, for income seekers, this high-yield stock looks like a buy.

Prosper Junior Bakiny 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.