Looking for Cheap Income Stocks? Why Pfizer Belongs on Your Shortlist Right Now

Shares of Pfizer (NYSE: PFE) have fallen more than 50% from their late 2021 highs. That massive drawdown has pushed the dividend yield up to a historically high 6.9%. To put that yield into perspective, the S&P 500 index (SNPINDEX: ^GSPC) has a yield of roughly 1.1%, and the average pharmaceutical stock's yield is around 1.5%. As a dividend stock, Pfizer looks historically cheap and relatively cheap. Here's what's going on and why you might want to add this drug maker to your shortlist.

Pfizer has some problems to deal with

Companies don't end up with outsize yields for no reason. Pfizer has several major patent expirations coming up. When a blockbuster drug loses patent protection, generic competition typically enters and revenues decline. This is why drug companies are always on the lookout for new drugs.

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On the new drug front, Pfizer hasn't been seeing the success Wall Street would like to see. Notably, it had to drop a GLP-1 weight-loss drug it was developing in early 2025. That was a public black eye, since it put the company well behind competitors.

There are very good reasons why investors are worried about Pfizer. And, notably, the dividend payout ratio is above 130%. There's also legitimate concern about the dividend's safety.

Things don't always line up in the business world

There are definitely things for dividend investors to worry about with Pfizer, and conservative types may want to avoid it. However, there's really nothing out of the ordinary going on with the company. Patent expiration dates and new drug development don't always align the way a company would like. But Pfizer has a long and successful history in the drug sector, so it seems highly likely it will navigate this transition period.

Notably, after its GLP-1 mishap, Pfizer quickly announced the acquisition of a company with a more promising weight-loss drug candidate. It has other notable drugs in its pipeline as well.

On the dividend front, the company's cash flows still cover the payment. Since dividends are paid out of cash flows, Pfizer has more wiggle room than it may seem to support the dividend (including using cash on its balance sheet and taking on additional debt). Management has also been very clear that protecting the dividend is a key priority.

Worth a risk for those willing to invest in out-of-favor stocks

Risk-averse investors probably won't like Pfizer. But given the company's strong history, the moves it is making to address the totally normal headwinds it faces, and its stated commitment to the dividend, more aggressive dividend investors may find this cheap income stock compelling enough to put on their shortlists.

Reuben Gregg Brewer 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.