Pfizer Inc.’s (NYSE:PFE) periodic dividend will be increasing on the 7th of March to $0.43, with investors receiving 2.4% more than last year’s $0.42. This will take the dividend yield to an attractive 6.6%, providing a nice boost to shareholder returns.
View our latest analysis for Pfizer
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. Based on the last payment, the company wasn’t making enough to cover what it was paying to shareholders. This situation certainly isn’t ideal, and could place significant strain on the balance sheet if it continues.
Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we estimate that the payout ratio could reach 74%, which is in a comfortable range for us.
Even over a long history of paying dividends, the company’s distributions have been remarkably stable. Since 2014, the annual payment back then was $1.04, compared to the most recent full-year payment of $1.68. This implies that the company grew its distributions at a yearly rate of about 4.9% over that duration. Although we can’t deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. However, initial appearances might be deceiving. Earnings per share has been sinking by 23% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we’ve come across 4 warning signs for Pfizer you should be aware of, and 2 of them are a bit concerning. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
