The board of Pfizer Inc. (NYSE:PFE) has announced that it will be paying its dividend of $0.43 on the 7th of March, an increased payment from last year’s comparable dividend. This makes the dividend yield 6.5%, which is above the industry average.

Check out 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.

The next 12 months could see EPS growing very rapidly. Assuming the dividend continues along the path it has been on, the payout ratio could get to 77% which is certainly still sustainable.

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $1.04, compared to the most recent full-year payment of $1.72. This means that it has been growing its distributions at 5.2% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. Unfortunately things aren’t as good as they seem. Over the past five years, it looks as though Pfizer’s EPS has declined at around 23% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn’t be feeling too comfortable.

In summary, while it’s always good to see the dividend being raised, we don’t think Pfizer’s payments are rock solid. 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. We don’t think Pfizer is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Pfizer has 4 warning signs (and 2 which are a bit concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.