The pandemic-influenced revenue gusher from which pharmaceutical giant Pfizer (PFE 1.11%) benefitted a few years ago has trickled down to a small stream. As a result, share prices have fallen and the stock trades near its lowest level in years. The falling share price has pushed the stock's dividend yield to nearly 6%.
There are signs though that the reduced-performance pain may be nearing an end. Catalysts in the drug production pipeline could spur Pfizer's next growth phase. Pfizer may not be the flashiest stock on Wall Street, but it's a stellar dividend stock that investors can sink their teeth into.
Here is what you need to know.
Pandemic revenue is drying up
That is a good thing. Ideally, pandemics eventually end, and the company wasn't expecting to benefit from these tailwinds forever. You can see below just how big Pfizer got. It's probably time for investors to rip the bandage off on their expectations regarding the pandemic.
PFE Revenue (TTM) data by YCharts
Pfizer's vaccine (Comirnaty) and treatment option (Paxlovid) combined for $56 billion in revenue in 2022. Those two products represented just $2.4 billion of Pfizer's $14.9 billion in first-quarter 2024 sales. That revenue should tail off more over the remainder of the year as the company moves further from the pandemic's height.
The good news is that declining sales should soon end, and Pfizer can start replenishing its top line with growth from non-pandemic-related products.
There are growth catalysts coming
It probably won't show up overnight, but Pfizer has been accumulating the building blocks for its next growth phase. It took a chunk of its COVID-19 profits and acquired oncology specialist Seagen for $43 billion. The idea is that Pfizer has been steadily growing its footprint in cancer care, and the Seagen acquisition loads its pipeline with promising long-term prospects. Management expects the size of its Oncology business to double by 2030, based on the number of expected patients it will treat.
Source: Pfizer Oncology Innovation Day presentation.
Pfizer believes just 35% of its 2030 oncology revenue will come from today's products, meaning the pipeline should do a lot of heavy lifting as new products enter the market. In the meantime, Pfizer could see an upward nudge from its specialty care products, which grew sales by 19% year over year in Q1.
Management is forecasting full-2024 sales at between $58.5 billion and $61.5 billion, notably higher than trailing 12-month sales of $55 billion. In other words, Pfizer's next growth phase could already be starting.
This growth should support the dividend
High dividend yields can represent a lack of trust in a company's ability to afford dividends. However, the rising dividend yield seems to be just a byproduct of the market selling Pfizer stock off for its declining sales. Management even raised guidance in Q1. It now expects earnings per share between $2.15 and $2.35. That's up from previous guidance of between $2.05 and $2.25.
The company's dividend is $0.42 per share quarterly, or $1.68 annually. It's been growing steadily since taking a hit during the Great Recession of 2008-09. The payout ratio is still manageable at 75% of earnings. Analysts believe Pfizer could grow earnings per share by an average of 10% annually over the next three to five years, which makes sense if the oncology unit starts picking up steam by 2025, as management hopes.
Investors can enjoy a significant yield in the meantime. That, combined with the eventual growth in oncology, makes Pfizer a total-returns investment that could deliver a shot of upside to any long-term portfolio.
