Motley Fool: Pfizer remains a dividend giant

You may know 175-year-old pharmaceutical company Pfizer (NYSE: PFE) best for its COVID-19 vaccine, but investors have long known the company as a reliable dividend payer. Pfizer has increased its dividend for 16 straight years, and its dividend yield was recently a fat 7.1%, meaning that a $1,000 position in the stock would generate $71 over a year.

Pfizer will lose patent exclusivity on several lucrative drugs over the next few years, but it still expects to deliver solid growth in the second half of this decade. Thanks in part to several acquisitions, it has multiple new growth drivers in its lineup, including migraine therapy Nurtec ODT (gained through its 2022 acquisition of Biohaven Pharmaceutical) and cancer drug Padcev (picked up via the 2023 buyout of Seagen). With the Seagen acquisition, Pfizer believes it may produce as many as eight breakthrough drugs and add $10 billion to its sales by 2030.

Happily for investors, Pfizer is generating enough cash flow to cover its dividend. In 2024, it paid $9.5 billion in dividends, while generating over $9.8 billion of free cash flow, not including $3 billion in cash proceeds from selling most of its stake in British consumer health care company Haleon. The stock is attractively priced, too; its forward-looking price-to-earnings (P/E) ratio has been in the single digits for a while, and was recently below 8.3. (The Motley Fool owns shares of and recommends Pfizer.)

My smartest investment

My smartest investment move happened decades ago, when I was still working. I heard Charles Schwab call in to a talk show. He was talking about opening a bank, so I opened a bank account at Schwab with $100. When he formed his brokerage firm, I used that money to buy shares of the Charles Schwab company. Over the years, due to stock splits, I ended up with many more shares. So following my rule to have no more than 10% of my portfolio in any one company, I sold some Schwab stock and invested in other companies, building up my portfolio – now worth about $1 million. – J.U., online

The Fool Responds: Well done! Schwab is not only a respected brokerage, but it has also been a solid stock performer over many periods. For example, while down more than 2% on average annually over the past three years, it’s averaged gains of nearly 19% annually over the past five years. And over the past 20 years, it has averaged 11% annually – close to 12% if you reinvested its dividends in more shares – outperforming the S&P 500 in both cases.

You were also smart to diversify your money across multiple stocks, as you never want to have too many eggs in any one basket.

(Do you have a smart or regrettable investment move to share with us? Email it to TMFShare@fool.com.)

Ask the fool

Q. Why is Spirit Airlines still around? I thought it went bankrupt. – D.Y., Maunawili, Hawaii

A. There’s more to bankruptcy than many people realize. If a company files for Chapter 7 bankruptcy, that means it’s heading for liquidation, in which assets are sold off to pay creditors. But many companies – like Spirit Airlines – file for Chapter 11 bankruptcy, which attempts reorganization instead of liquidation. Chapter 11 gives a company time to come up with a new plan to pay its creditors while it continues to operate.

Spirit Airlines, struggling financially and facing major debt repayments, filed for Chapter 11 bankruptcy protection in November 2024. Spirit emerged from Chapter 11 in March – as a “stronger and more focused airline,” per its CEO Ted Christie. Long known as a no-frills airline, it plans to rebrand, targeting wealthier customers.

Q. What does it mean if a company is trading below book value? – F.H., Dunwoody, Georgia

A. A company’s book value is equal to its total assets less its total liabilities, as reflected under generally accepted accounting rules. When the company’s market capitalization (market value) is less than its book value, that suggests that investors are seeing the business as worth less than its assets.

Such a situation can present a great opportunity for investors if the low valuation is unwarranted, but stocks often fall in value for good reason. It’s also possible that the company’s assets are overvalued.

In addition, book value is less relevant these days than it used to be. Many companies’ biggest assets – such as their brands, patents, data, technology and valuable employees – can be considered intangible assets and not counted in book value.