This is the second post in my dividend investing series. Today, I want to take a look at a large cap pharmaceutical stock with a juicy 4% yield. This company has undergone a lot of changes over the past few years. The company has turned from a major growth stock into a dividend stock. The former CEO quit 3 months and the company just hired a new one. The company made a major acquisition a few years ago that has added cash to the firm’s bottom line.
The company in question is Pfizer (PFE).
Pfizer is one of the largest biopharmaceutical company’s in the world with a market cap of $162 billion dollars. The company employs 116,500 people and derives revenue off of a variety of different drugs and consumer pharmaceutical products. Pfizer is number 140 on Fortune’s list of the 500 largest global companies. New CEO Ian Read was hired three months ago to guide the company through its recent change in the strategic direction of the company.
Pfizer has been in the deal making business in recent years with the company using acquisitions to make up for the lack of organic growth. Pfizer recently bought pharmaceutical giant Wyeth for $68 billion dollars last year. Pfizer expanded its product line of pain relief and management medication by acquiring King Pharmaceuticals. The total cost of the deal was $3.6 billion dollars in cash.
Pfizer’s Stock Valuation
Pfizer currently trades at 1.8 times book value, 2.4 times sales, and 14.3 times cash flow. The stock has a current P/E ratio just under 20 and a forward P/E ratio of 9. Pfizer will have no trouble funding its dividend since the company has a whopping $28 billion dollars in cash and generates $9.9 billion dollars in free cash flow.
Pfizer just recently increased its dividend 11% to 80 cents per share. This equates to an even 4% yield. Pfizer has room for more dividend increases as the company is likely to double it earnings per share. EPS is expected to come in at $2.24 per share compared to $1.02 per share last year. The current payout rate is just 35% of this year’s earnings. This is below the payouts of most competitors.
- 66% dividend payout of GlaxoSmithKline
- 61% payout of Bristol Myers Squibb
- 46% payout of Eli Lilly
- 41% dividend payout of Merck
- 38% payout of Novartis
Pfizer’s growth days may be behind it but the stock is still an earnings giant with a fantastic balance sheet. Dividend investors looking for a stock with limited price appreciation but great income potential should consider Pfizer.
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