Pfizer’s dividend yield is 7.5%. Is it still safe?

High dividend yields can be attractive, but they can also raise the flag of income investors.
Pfizer’s decline has resulted in its yield well over 7%.
The company’s payment rate and free cash flow help investors assess the safety of their dividends.

Once the stock earns more than 5%, investors begin to become skeptical about whether payments are certainly safe. It’s appealing to believe that it’s safe and could be a great source of future dividend revenue, but you’re burned and don’t want to see that dividends cut or halted.

Consider the drug giant Pfizer (NYSE: PFE). That dividend yield is currently around 7.5%, and if inventory continues to decline, it may not be long before it reaches 8%. The big question is whether this is really a deal stealing, a good purchase or does Pfizer need to cut its dividends immediately?

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A good starting point for investors to analyze dividend stocks is to see it Payment ratio. This takes into account the company’s dividends regarding earnings per share (EPS). The higher the EPS is associated with dividend per share, the lower the payment rate and the dividend is more sustainable.

The company currently pays quarterly dividends at $0.43. This totals $1.72 a year. And in 2024, Pfizer’s diluted EPS came out for just $1.41. This is well below the annual dividend rate. However, this can be a bit misleading as the company has incurred billions of dollars in restructuring costs and asset impairment costs. These are non-cash items, but they still affect revenue and could make the company’s payment ratio look better otherwise.

So I’m saying the payout rate is good Starting point When analyzing income stocks, however, a high ratio does not mean that investors need to assume that dividends are destined. A better option might be to look at the company’s Free cash flow.

Free cash flow tells investors how much cash the company is generating after deducting capital expenditures. This is an important metric as it excludes noise that often comes from non-cash items such as impairment charges and other non-repeated accounting adjustments.

Last year, Pfizer’s free cash flow totaled $9.8 billion, with cash dividend payments of $9.5 billion. This suggests that the payments are indeed sustainable as Pfizer generated more free cash than what he paid in dividends. There’s no big buffer there, but there’s no big red flag either.

Of course, one wildcard is how the business does it amid tariffs and whether these put a major dent in its operations, both from a revenue perspective and in terms of free cash flow.

Pfizer’s dividends look safe now, and stock trading is just eight times as much future revenue, which could prove to be a bargain purchase. If revenues deteriorate this year, they are well valued to provide investors with a great safety margin.

In the past, Pfizer CEO Albert Brula has called dividends “sacre cows,” suggesting that a lot is needed to disrupt the company’s dividend policy. While tariffs pose risks to the business, it is difficult to predict how it will affect Pfizer’s business and how long it will last. I do not suggest making rash decisions based on them.

For long-term investors, stocks have fallen this year despite already low price tags, but this makes for a healthcare stock that is good to buy and forget about for a long time.

Consider this before purchasing stocks at Pfizer.

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David Jagielski There is no position in any of the stocks mentioned. Motley Fool has a position and recommends Pfizer. To Motley’s fool Disclosure Policy.

Pfizer’s dividend yield is 7.5%. Is it still safe? Originally published by The Motley Fool

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