Workflow
Pfizer's Dividend Yield Is 7.5%. Is It Still Safe?
PFEPfizer(PFE) The Motley Fool·2025-04-30 10:15

Core Viewpoint - Investors are becoming skeptical about the safety of dividends when yields exceed 5%, with Pfizer's current yield at approximately 7.5% raising concerns about potential cuts [1][2]. Dividend Analysis - Pfizer's current quarterly dividend is 0.43,totaling0.43, totaling 1.72 annually, while its diluted EPS for 2024 is 1.41,indicatingthattheEPSisbelowtheannualdividendrate[3].Thepayoutratio,whichcomparesdividendstoEPS,isacriticalmetricforassessingdividendsustainability,butitcanbemisleadingduetononcashitemsaffectingearnings[4].FreeCashFlowPfizersfreecashflowforthepreviousyearwas1.41, indicating that the EPS is below the annual dividend rate [3]. - The payout ratio, which compares dividends to EPS, is a critical metric for assessing dividend sustainability, but it can be misleading due to non-cash items affecting earnings [4]. Free Cash Flow - Pfizer's free cash flow for the previous year was 9.8 billion, with cash dividend payments at $9.5 billion, suggesting that the dividend payout is sustainable as free cash exceeds dividend payments [5][6]. - The company’s free cash flow metric is essential as it excludes non-cash items, providing a clearer picture of cash generation [5]. Investment Potential - Pfizer's stock is trading at a low valuation of 8 times its estimated future earnings, presenting a potential bargain for income investors [7]. - The CEO has referred to the dividend as a "sacred cow," indicating a strong commitment to maintaining the dividend policy despite potential risks from tariffs [8]. Long-term Outlook - Despite a decline in stock price this year, Pfizer may be a suitable long-term investment in the healthcare sector, allowing investors to hold without frequent monitoring [9].