Is Pfizer Stock a Buy?

Pharmaceutical giant Pfizer (NYSE: PFE) is trading near its lowest price in over a decade.

The company's revenue and profits ballooned during the pandemic on its COVID-19 vaccine and treatment. Then the balloon popped and the business contracted, sending investors running for the exits. Pfizer has become an interesting case of a well-known stock offering an outsized dividend yield.

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Is this a classic yield trap -- an abnormally high yield with poor business fundamentals lurking beneath the surface? Or could it be a once-in-a-decade investment opportunity?

Here is whether Pfizer stock might be a buy today -- and why.

Pfizer's pandemic boom (and bust) shouldn't haunt the stock much longer

Dividend investors will focus on Pfizer's current dividend yield of 6.3%. The stock has offered high yields before, averaging about 4% over the past decade. However, the current yield is significantly higher than usual, a classic warning sign that investors sense trouble within the business. Are those fears warranted?

Pfizer benefited from the pandemic. Sales of its COVID-19 vaccine (Comirnaty) and treatment (Paxlovid) totaled over $56 billion in 2022, over half of the company's revenue that year. However, those pandemic-related sales have mostly dried up at this point. Excluding Comirnaty and Paxlovid, Pfizer grew revenue by 14% year over year in the third quarter of 2024.

You can see below that Pfizer's trailing-12-month (TTM) revenue and earnings per share (EPS) have seemingly bottomed as non-COVID growth begins to drive the bus again:

PFE Revenue (TTM) data by YCharts.

The market hasn't responded much to this pivot yet, but it could be just a matter of time. Stock prices can be irrational in the short term, but tend to follow earnings eventually.

Growing earnings fuel this dividend

Pfizer's high dividend yield may have caught your attention, especially if you're a dividend investor. Although the market's pessimism has elevated this yield to its highest level since 2008-2009, the financials backing it remain rock-solid.

Management has done nothing but reiterate its commitment to the dividend, both verbally in earnings calls and through its actions. In December, Pfizer raised the quarterly dividend by a penny. It's not a huge increase, but you get that massive starting yield.

More importantly, Pfizer can afford the increase. The annual dividend is now $1.72 per share, just 60% of the company's final 2024 earnings guidance. With the wheels of growth beginning to turn again, that dividend seems like a safe bet to continue paying and growing.

Pfizer spent a significant portion of its pandemic windfall on a $43 billion acquisition of Seagen, a biotech company specializing in oncology. The new-look Pfizer has bet heavily on oncology for future growth, with 2030 goals to add several new blockbuster drugs to its portfolio, shift most of its business to biologics (drugs derived from living cells), and double its treated patient base.

Analysts estimate that Pfizer's efforts will lead to annualized long-term earnings growth of approximately 8%, which is plenty to support future dividend raises.

This is a rare high-yield stock with capital gains upside

Pfizer is one of the largest pharmaceutical companies. It's been around for generations. While I wouldn't call it a growth stock, it could have market-beating potential at these prices. The stock trades at only 9 times earnings, a bargain for a business expected to grow by 8% annually. That's a price-to-earnings-to-growth (PEG) ratio of about 1.1, low enough that Pfizer stock should have a relatively low floor even if the business ultimately falls short on growth.

PFE EPS LT Growth Estimates data by YCharts.

The market has valued Pfizer as a company that has low-single-digit earnings growth, but it's far more than that -- it provides an easy 6% return from the dividend alone. Investors usually buy a stock for a specific purpose: Growth stocks typically offer greater share-price appreciation, while high-yield dividend stocks offer investment income. But occasionally, funny things happen in the market, and a stock provides both.

Pfizer appears to fall into that opportunistic category. That makes the stock a buy for any investor looking for reliable dividend income, or just a good deal today.

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Justin Pope 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.