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For a stock which is a good dividend payer but growing at the inflation rate, I would treat it as a hold. If it is already in my portfolio, that is fine, but I want a little margin on the growth rate for a buy in case inflation picks up in the future.
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I’ve got a real love/hate relationship with Pfizer. I bought 200 shares in late 2008 for $16.22 per share. But it was paying a dividend of $1.28 a share back then. With the share price near $30 now, I’ve done fine on the trade, but from an income perspective, it will be another couple of raises before the dividend is back to the level it was when I bought it. I’m holding what I’ve got, and continuing to reinvest the dividends, but haven’t thought seriously about buying new shares.
But your post inspired me to update my spreadsheet on PFE, and here is what I’ve found:
By my math, the current yield is 3.48 percent, not 3.2 percent. I would not consider a 3.2 percent yield to be all that bad, but 3.48 is pretty healthy in my book. Of course there is a black mark on PFE’s record due to the dividend cut in 2009, but they have been a consistent dividend payer, and it looks like the cut at the time was necessary, and since then the numbers look a lot better.
On the earnings front, the story was pretty glum from 2008 to 2012, with earning going essentially nowhere, stuck in the $1.02 to $1.20 range. At those earnings numbers, the payout ratio was a tad high, around 70 percent. Fortunately, earning numbers in 2013 were better ($1.66), and projections for 2014 are better still (possibly north of $2.00). They raised the dividend by 8.33 percent this year, from 24 cents a share in 2013 to 26 cents a share in 2014. With earnings growing faster than the dividend, the payout ratio is falling into a much more comfortable range. If total 2014 earnings are $2.00, then the 2014 total dividend of $1.04 would mean a payout ratio of 52 percent.
The $3.19 in earnings that you see on M*, and is also on Yahoo I think, I believe is the error. It is a ttm number, rather than a quarterly on annual number as reported. And I can’t find any numbers that add to $3.19. That said, I have often been confounded by PFE’s earnings reporting. Sometimes it feels like there are two completely disconnected sets of numbers out there. So I can’t rule out a mistake on my part, but just this morning I went through all of PFE’s annual reports for the last five years to pull out the quarterly earnings numbers, and unless they’ve earned obscenely larger amounts in the last few months, I think the $3.19 is inaccurate.
So the bottom line for me is that you’d be getting a very solid yield for an excellent company with earnings moving in the right direction. I’m always a little more cautious with pharmaceutical companies, since future earnings are likely to be a lot more volatile than, say, a consumer staples company. But that could cut the right way, too. A couple of solid product wins, and earnings could move significantly higher. I haven’t studied their drug portfolio or pipeline recently, which I think would weigh heavily on any purchase decision.
Keep us posted on what you do!
Thanks guys. What initially attracted me was the free cash flow every year. It looks like they have plenty of room to grow the dividend if need be. I might place a buy order around 29 for a small position. If it drops further I will probably add. Thanks for all the input. Please keep it coming.
News out that PFE might be buying AstraZeneca for $100 billion. AZN is a very profitable company with no net debt. They are paying a 25% premium on the company, but its better than having their cash "sit there". I assume they see it as the best way to use overseas cash, since they can't bring it back to the US. No doubt PFE will have to go into debt to make this happen. How much and at what terms is not yet known.
Hopefully PFE takes a hit here and I can initiate my position.
