Is Pfizer's 6.1% Dividend Yield a Hidden Gem for Long-Term Investors?

Investors holding shares of Pfizer (NYSE: PFE) have faced turbulent times over the past few years, with the stock plunging over 50% from its high in late 2021. Despite these setbacks, Pfizer has remained steadfast in its commitment to raising dividends, even increasing its payout last December for the 15th consecutive year. The pharmaceutical giant boasts a substantial 6.1% dividend yield, sparking curiosity among income-focused investors. But is now the right time to dive into Pfizer's offerings? Let's weigh its potential benefits against the red flags.

Why Pfizer Could Be a Smart Buy

The impressive sales figures from Pfizer’s COVID-19 vaccine, Comirnaty, and its antiviral treatment, Paxlovid, reached a staggering $56 billion combined in 2022. Although the rapid decline in sales of these drugs contributed to the dip in stock, Pfizer has strategically utilized the revenues for substantial reinvestments. Notably, in the previous year, the company made a significant acquisition, purchasing Seagen, a cancer drug developer with four commercial-stage therapies, for approximately $43 billion.

In 2023, the FDA approved nine new drugs from Pfizer’s development pipeline. One standout, Velsipity, emerged from Pfizer’s $6.7 billion acquisition of Arena Pharmaceuticals in 2022 and is anticipated to generate over $2 billion in sales by 2030 as a treatment for ulcerative colitis. Additionally, the acquisition of Biohaven and its migraine therapies for $11.6 billion in 2022 brought Pfizer Nurtec, which is on its way to becoming a blockbuster drug, expected to surpass $1 billion in annual revenue. Further bolstering its migraine portfolio, the FDA approved Zavzpret last year—a fast-acting nasal spray likely to surpass Nurtec in popularity.

Pfizer’s performance in the first quarter of this year remains robust if we exclude the sales of Paxlovid and Comirnaty and the negative impact of a stronger dollar. The company's total first-quarter sales jumped 11% year over year. With multiple new drugs set to hit the market, Pfizer projects adjusted earnings to range between $2.15 and $2.35 per share this year, comfortably covering its annual dividend commitment of $1.68.

Reasons for Caution

While Pfizer reported impressive 66% year-over-year growth in first-quarter sales for Vyndaqel, a treatment for a rare disease involving transthyretin amyloidosis, future sales growth may slow. This June, Alnylam (NASDAQ: ALNY) revealed successful phase 3 clinical trial results for vutrisiran, a quarterly injection that reduced the risk of heart attack or death by 28% in patients taking Vyndaqel.

Another concern is Pfizer’s top-selling cancer drug, Ibrance, which accounts for about 7% of the company’s sales. Ibrance faces intensified competition, reflected in an 8% year-over-year decline in first-quarter sales.

Should You Consider Pfizer Now?

Large companies like Pfizer constantly juggle multiple moving parts in the dynamic pharmaceutical landscape. While Comirnaty, Paxlovid, and Ibrance face headwinds, Pfizer's diverse and growing pipeline, particularly its new acquisitions, provides promising avenues for continued earnings and dividend growth. Adding Pfizer to a diversified portfolio and holding on for the long term—potentially a decade—appears prudent for many investors.