PFIZER INC. $36(New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares outstanding: 6.0 billion; Market cap: $216.0 billion; Dividend yield: 3.8%; Dividend Sustainability Rating: Highest; www. pfizer.com) is one of the world’s leading prescription drugmakers. Its top-selling brands include Lyrica (epilepsy), Celebrex (arthritis pain), Prevnar (pneumonia) and Enbrel (rheumatoid arthritis).
The company is currently studying options for its Consumer Healthcare business. It makes over-the-counter medications and supplements, including Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup). In 2017, those products accounted for 7% of Pfizer’s overall revenue.
Depending on the results of the review, the company may opt to sell all or part of that business or spin it off. It expects to complete the process by the end of 2018.
Seven years of rising dividends
Starting with the March 2018 payment, Pfizer will increase its quarterly dividend by 6.3%, to $0.34 a share from $0.32. The new annual rate of $1.36 yields 3.8%. Pfizer has now increased the annual rate each year since 2011.
Pfizer’s revenue fell 5.3%, from $51.6 billion in 2013 to $48.9 billion in 2015. That’s partly because it continues to face more competition from generic drugs as many of its main products lose their patent protection.
In response, the company has purchased smaller drugmakers with promising products. Among them is the September 2015 purchase of Hospira for $17 billion. It makes copies of biologic drugs that have lost patent protection.
Thanks to those new businesses, Pfizer’s revenue improved to $52.8 billion in 2016. However, revenue dipped 0.5% to $52.5 billion in 2017. That’s because the company sold its Hospira Infusion Systems business for $900 million. That operation makes intravenous pumps. If you factor out those products and foreign exchange rates, revenue gained 1.5% for the year.
Overall earnings fell 10.0%, from $15.3 billion in 2013 to $14.5 billion in 2014. However, earnings per share gained 1.8%, from $2.22 to $2.26, on fewer shares outstanding. Pfizer’s earnings then fell to $2.20 a share (or a total of $13.8 billion) in 2015, before rebounding to $2.40 a share (or $14.8 billion) in 2016, and rising again in 2017 to $2.65 a share (or $16.1 billion).
High research spending a hidden asset
Pfizer continues to spend heavily to develop new drugs. It spent $7.7 billion (or 14.6% of revenue) on research in 2017. For 2018, the drugmaker has set aside $7.4 billion to $7.9 billion for research.
Pfizer’s strong balance sheet will let it continue to invest in its operations. As of September 30, 2017, its long-term debt was $34.5 billion, or just 16% of its market cap. It also held cash of $16.9 billion, or $2.84 a share.
The company also recently announced a new $10 billion share repurchase authorization. If you include the $6.4 billion remaining under the previous plan, Pfizer can now buy back up to $16.4 billion, or about 8%, of its shares. There are no time limits for those purchases.
For all of 2018—and including its consumer division— Pfizer expects to earn between $2.90 and $3.00 a share. The stock trades at just 12.2 times the midpoint of that range.
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