I owned shares of Pfizer (NYSE: PFE) when the COVID-19 pandemic started. Watching the stock soar over 60% in roughly two years was fun. Seeing Pfizer’s share price fall nearly 60% from its peak wasn’t so fun.
Have I been tempted to sell during this major decline? Nope. Instead, I’m buying this beaten-down, high-yield dividend stock hand over fist.
Through the dark clouds
It’s understandable why Pfizer stock has fallen so much. The drugmaker has faced some big challenges and has more on the way.
Pfizer’s revenue in 2023 fell 42% from the previous year. Sales for the company’s top-selling product, COVID-19 vaccine Comirnaty, sank 70% year over year. Sales for Pfizer’s COVID-19 pill Paxlovid plunged 93%. Ouch.
Those COVID woes weren’t Pfizer’s only problem areas. Sales for six of the company’s cancer drugs that generate $180 million or more annually fell by double-digit percentages. Revenue for Pfizer’s best-selling cancer therapy, Ibrance, dropped 7% year over year in 2023.
To make matters worse, the key U.S. patents for seven of Pfizer’s products expire by 2027. All were blockbusters last year.
So why am I buying Pfizer stock? I can see the sun peeking out through the dark clouds. I’ve observed the tremendous productivity of the company’s pipeline in recent years, with a record number of Federal Drug Administration (FDA) approvals in 2023. I’ve also watched Pfizer use the massive cash stockpile accumulated during the peak COVID period to gobble up several smaller drugmakers. These deals have bolstered the company’s pipeline considerably.
The numbers look good
As I see it, Pfizer’s numbers look very good. Let’s start with valuation. The stock trades at a forward price-to-earnings ratio of under 11.5. Compared to the S&P 500‘s forward-earnings multiple of 20.5, Pfizer is dirt cheap.
Granted, this valuation metric is useless if Pfizer’s revenue and earnings continue to plummet. However, I don’t think that’s going to happen. This year should be the low point for the company’s COVID-19 product sales. Pfizer expects new products and indications will generate enough additional revenue to make up for the impact of the upcoming patent expirations and then some. Analysts are somewhat less optimistic but still project much of the revenue loss resulting from the patent cliff will be offset by new products.
Another number I like is Pfizer’s dividend yield of over 6.5%. The big pharma company’s share price doesn’t have to grow much for the stock to deliver a double-digit total return.
That leads me to the third number that looks good for Pfizer: the roughly $25 billion in new annual revenue the company expects by 2030 from business development deals. This estimate seems attainable, in my opinion, considering the new products and pipeline candidates Pfizer has as a result of its acquisitions of Seagen, Arena, Biohaven, and Global Blood Therapeutics. I suspect business development will enable the company to grow its revenue and earnings at least by the 3.5% per year needed for an average annual total return of 10%.
Setting myself up for later
I plan to reinvest any dividends from Pfizer over the next few years. However, buying more shares now should set me up later for retirement.
Pfizer’s dividend generates solid income at its current level. I expect the company to increase its dividend over time. That seems like a good bet since Pfizer’s management lists dividend growth as its top priority.
What should be done with a stock that could deliver double-digit total returns and be a great component of a long-term retirement strategy? My answer is to buy it hand over fist.
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Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
Why I’m Buying This Beaten-Down, High-Yield Dividend Stock Hand Over Fist was originally published by The Motley Fool
