The healthcare sector isn’t the first place income investors turn to find high dividend yields. Of the 11 S&P 500 sectors ranked based on average dividend yield, healthcare comes in eighth.
Plenty of healthcare stocks, though, pay juicy dividends. Some are good picks, but others aren’t. Here’s one ultra-high-yield healthcare stock to buy hand over fist — and one to avoid.
Buy Pfizer
Some investors might think Pfizer (NYSE: PFE) is a healthcare stock to avoid rather than buy hand over fist. That view is understandable if you only look at the drugmaker’s recent history. Pfizer’s share price has plunged over 50% from the peak set in late 2021. Although the stock has risen this year, it’s barely in positive territory with a meager gain that lags well behind the S&P 500’s strong return.
The primary culprit behind Pfizer’s dismal performance is its COVID-19 vaccine Comirnaty. In 2022, Comirnaty generated sales of $37.8 billion. Pfizer expects the vaccine to rake in only $5 billion in 2024.
To make matters worse, Pfizer faces a looming patent cliff. Kidney cancer drug Inlyta and autoimmune disease drug Xeljanz lose patent exclusivity next year. Patents for breast cancer drug Ibrance and prostate cancer drug Xtandi expire in 2027. Blood thinner Eliquis faces biosimilar competition by 2028. Rare disease drug Vyndaqel goes off-patent in 2028, assuming Pfizer wins a patent term extension.
Should all of this make income investors leery about Pfizer’s ultra-high forward dividend yield of 5.66%? I don’t think so. Instead, I view Pfizer as a smart pick for anyone seeking income. The drugmaker puts maintaining and growing its dividend at the top of its capital allocation priorities.
More importantly, Pfizer’s future should be brighter than it looks at first glance. The company returned to year-over-year revenue growth in the second quarter of 2024 for the first time since the fourth quarter of 2022. Management expects to deliver solid growth in the second half of the decade thanks to multiple new products on the market.
Pfizer’s pipeline also includes some potentially huge winners….
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