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Spokane, Washington  Est. May 19, 1883

Motley Fool: Pfarmas joining Pforces

Pfizer is merging its Upjohn unit, which is home to the drugs that have lost patent protection, with generic drugmaker Mylan to form a new company called Viatris. (Associated Press)

The dividend of pharmaceutical giant Pfizer (NYSE: PFE) recently yielded 3.9%, making it rather appealing to income-seeking investors. Pfizer has long prioritized its dividend program, boosting its payout by 125% over the past 10 years.

Probably the biggest knock against Pfizer is that several of its former top-selling drugs have lost patent exclusivity, notably Lyrica. Declining sales for these drugs present a threat to the company’s near-term growth prospects. However, Pfizer has a plan.

It’s merging its Upjohn unit, which is home to the drugs that have lost patent protection (such as Viagra and Lipitor), with generic drugmaker Mylan – forming a new company called Viatris. Joining forces with Mylan will allow Pfizer to focus its portfolio on newer and more innovative products – and, hopefully, more profitable ones.

Pfizer CEO Albert Bourla expects that blockbusters such as breast cancer drug Ibrance and blood thinner Eliquis, and anticipated ones like rare-disease drug Vyndaqel, will fuel strong revenue and earnings growth for Pfizer through the mid-2020s.

After the Upjohn-Mylan deal is completed, Pfizer’s dividend will likely shrink, but its shareholders will have received shares in Viatris, which will also pay a dividend. Give Pfizer, and its pipeline of products in development, a closer look.

Ask the Fool

Q: Can I find out how many people own shares of a certain company’s stock? – P.F., Pocahontas, Arkansas

A: It’s very difficult, if not impossible.

You might start by looking up the company’s annual 10-K filing with the Securities and Exchange Commission, via the SEC.gov website. For example, in PepsiCo’s 10-K for its 2018 fiscal year, it notes, “As of Feb. 8, 2019, there were approximately 114,513 shareholders of record of our common stock.” That seems like a lot, but it’s probably grossly undercounting shareholders.

Shareholders of record have registered their shares in their own name. But nowadays, most shares of stock are held in “street name.” That’s when you buy through your brokerage and the shares are registered in the brokerage’s name – though you remain their owner.

Meanwhile, many mutual funds hold some PepsiCo shares, and their thousands of shareholders are generally not counted as owners of PepsiCo stock, either.

Q: I’m selling a stock. How do I determine my cost basis for tax purposes? – H.L., Burlington, Vermont

A: Your brokerage might be able to tell you your basis. But let’s say you buy 100 shares of Dodgeball Supply Co. (ticker: WHAPP) for $30 each and pay a $10 commission. Your cost basis is the purchase price ($3,000) plus the commission, or $3,010. Divide $3,010 by 100, and you’ll get a cost basis per share of $30.10. If you eventually sell the shares for $40 each, or $4,000 – again paying a $10 commission – subtract the commission to get net proceeds of $3,990, or $39.90 per share. Your taxable capital gain is the difference – $980, or $9.80 per share. (Many brokerages have recently lowered their trading commissions to $0, making the math a bit easier.)

My smartest investment

My smartest investment was in IBM. I worked for the company and retired in 1993 with shares worth around $30,000. My cost basis in them was nearly $46,000 – I’d lost money, overall. I hung on, though, and now, after some stock splits, I have four times as many shares, worth more than $300,000. I took the dividends from the shares in cash and used them for living expenses and to purchase more investments. The dividends from the past four years alone exceeded what I originally paid for the stock.

Meanwhile, we didn’t buy any long-term care insurance, but I figure that if we need to, we can sell the IBM shares to cover that, and maybe even be able to deduct the medical expense on our taxes to offset some or all of the capital gains tax we’d face. If we don’t need to sell the shares, the stock can end up donated to charity or left to heirs. – R.L., Eyota, Minnesota

The Fool responds: That’s great, all around! You learned that many great companies go through down periods, and experienced how robustly some stocks grow over long spans. Reinvesting dividends in more stock is a great way to turbocharge growth, too.

Your long-term care plan is a good one. Those who can’t afford the care on their own should consider getting the insurance. It’s pricey, though, and cheapest while you’re still middle-aged.