Pfizer's 7.5% Dividend: Income Haven or House of Cards?

Entrepreneur

24-05-2025

This story originally appeared on MarketBeat
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A dividend yield that surpasses 7.5% from a pharmaceutical sector giant like Pfizer Inc. (NYSE: PFE) certainly catches the eye of income-seeking investors.
Such a substantial return often signals a mature, stable company generously rewarding its shareholders. However, a closer look reveals a complex picture for the New York-based drugmaker.
Does this impressive payout actually represent a secure income stream, or does it mask underlying concerns regarding the company's future growth trajectory and financial resilience as it continues to evolve in a rapidly transforming healthcare sector?
Unpacking Pfizer's 7.5% Promise
Pfizer's commitment to returning capital to shareholders is evident in its current annual dividend of $1.72 per share. This translates to a quarterly payment of $0.43 per share. As of May 22, 2025, this payout results in a dividend yield of 7.5%. For context, the dividend yield represents the annual dividend payment as a percentage of the stock's current price, offering a measure of the income return an investor can expect.
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Pfizer has a noteworthy track record, having increased its dividend for 16 consecutive years, a history that often appeals to investors looking for reliable and growing income.
Crucial to assessing any dividend's reliability is an understanding of the company's payout ratios. The dividend payout ratio measures the proportion of earnings or cash flow paid out to shareholders as dividends. Pfizer's dividend consumes approximately 47.69% of its cash flow. A payout ratio below 100% based on cash flow generally suggests that a company is generating sufficient cash to cover its dividend payments, which is a positive sign for sustainability.
However, when looking at its trailing 12-month earnings, the payout ratio stands at a much higher 124.64%. This figure indicates that, based on recently reported profits, the company paid out more dividends than it earned. This disparity highlights the importance of future earnings growth and cost management in maintaining the dividend at current levels.
The Revenue Squeeze: Pfizer's Top-Line Test
Pfizer's recent financial performance reveals shifting revenue dynamics. In the first quarter of 2025, total revenues decreased by 8% year-over-year to $13.7 billion, primarily due to a sharp 75% drop in Paxlovid sales as COVID-19 demand normalized, creating challenging growth comparisons. Beyond this, Pfizer faces a significant long-term hurdle: the company is at the edge of an impending patent cliff.
Key drugs like Eliquis (losing exclusivity in April 2028), Prevnar, Ibrance, and Xtandi (facing competition in 2026-2027) are expected to cause an annual revenue loss of $17-$18 billion between 2026 and 2028. This type of revenue threat requires that Pfizer create a strong defensive strategy to develop new revenue streams.
How Pfizer Aims to Refill Its Revenue Engine
In response to these revenue pressures, Pfizer is actively pursuing a strategy centered on pipeline rejuvenation, with a pronounced focus on oncology. A cornerstone of this strategy was the $43 billion acquisition of Seagen in March 2023. This acquisition significantly built upon Pfizer's capabilities in antibody-drug conjugates, a promising class of cancer treatments, and Seagen's portfolio contributed $3.4 billion to Pfizer's revenue in fiscal year 2024.
More recently, in May 2025, Pfizer entered into an exclusive global licensing agreement (excluding China) with 3SBio, Inc. for SSGJ-707, an investigational bispecific antibody targeting PD-1 and VEGF for multiple cancer types. The deal includes a $1.25 billion upfront payment and could be worth up to $6 billion in total, underscoring Pfizer's commitment to sourcing external innovation. The company aims to launch eight new cancer medicines by 2030.
Positive developments in the oncology pipeline include a U.S. Food and Drug Administration (FDA) approval for Adcetris in large B-cell lymphoma and encouraging clinical data for Padcev in urothelial cancer. Talzenna also showed positive overall survival data in prostate cancer, though an FDA advisory panel has raised questions about its broader application.
Outside of oncology, the Abrysvo RSV vaccine has seen expanded recommendations in Europe and the U.S., potentially increasing its market reach. However, the path of drug development is not without setbacks, as evidenced by the discontinuation of the oral GLP-1 candidate danuglipron in April 2025.
Pfizer's Payout: A Sustainable Reward or a Yield Trap?
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Pfizer's current 7.5% dividend yield undeniably offers an excellent income component for investment portfolios. This payout is backed by a history of consistent growth and, importantly, by the company's cash flow generation. However, this attractive yield exists within a context of significant operational and strategic challenges. The decline in revenues from COVID-19 products and the impending loss of exclusivity for several major drugs create a considerable hurdle for future top-line growth.
As concerning as that might seem, the company is not standing still; aggressive cost-cutting measures are underway, and significant investments are being made to rejuvenate the pipeline, particularly in the high-potential oncology sector. The success of these strategic plan executions will be critical in determining Pfizer's ability to navigate the upcoming patent expirations and to return to a path of sustainable revenue and earnings growth.
For investors, the decision hinges on balancing the allure of the current high yield against the uncertainties tied to Pfizer's multi-year transition. The long-term viability of the dividend at its current relative level will ultimately depend on the successful execution of its growth strategy.
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