If a dividend stock is struggling and falling in value, that pushes its yield up. This happens because while you are getting the same dividend, it is now costing you less money to acquire it. As long as the dividend remains sustainable, buying a dividend stock on a dip in price or near a low can be an advantageous thing for income investors to do.
Pharma stock Pfizer (NYSE: PFE) has dropped more than 30% in value over the past 12 months and is now trading near its 52-week lows. Today, its dividend yield is an incredible 6.1%, which is well above the S&P 500 average of 1.4% and also far higher than what Pfizer’s dividend has been in the past. Has Pfizer become an incredible buy for dividend investors, and is it the best dividend stock you can own today?
Is Pfizer’s dividend safe?
A crucial question for investors any time they deal with a high-yielding dividend, particularly one that’s yielding more than 5%, is whether or not the payout is safe. If a dividend isn’t sustainable, then that means a dividend cut could be around the corner, and it may not be much of a deal for investors.
If you were to look at Pfizer’s payout ratio based on earnings, it would look unsustainable. For 2023, its diluted earnings per share totaled just $0.37; the company’s dividend totals $1.68 per year. But that is a bit misleading because while Pfizer did have an off year in 2023, its results were hampered by asset impairment charges, which don’t affect cash and are nonrecurring.
In terms of free cash flow, Pfizer’s dividend looks much more sustainable, with the company typically generating more free cash than its dividend payments.
Fundamental Chart Chart
This suggests that while Pfizer’s dividend is high, it may not be in danger of a cut.
Is Pfizer’s business in good shape?
Another important question for dividend investors to consider is the state of the overall business. While the dividend may look safe based on its recent results, what matters is what the future holds and whether the upcoming results will be strong enough to support the dividend.
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