Is Pfizer's 7% Dividend Yield Too Good to Be True? Here's the Straight Answer
Income seekers shouldn't give up on the stock yet.
Overview
We can separate high-yield dividend stocks into two broad categories. The first group consists of companies with stable businesses that generate consistent cash flow and are very likely to continue paying -- and perhaps raising -- their dividends for the foreseeable future. The second are distressed corporations. They boast high yields because their share prices have fallen substantially, reflecting weak business fundamentals.
Many investors would put Pfizer (NYSE: PFE) in the second group. The drugmaker's shares have lost significant value over the past five years, as the company has failed to sustain the amazing success it achieved in the coronavirus market. However, there is much more to the story. Let's discuss why Pfizer's 7% forward yield is more sustainable than it appears at first glance.
Details
Pfizer's revenue and earnings have declined over the past five years, while it has maintained and even increased its dividend. The company's payout ratio has soared as a result -- it is currently about 127%. That looks unsustainable. But Pfizer's cash payout ratio, a much better measure of whether the company can maintain its dividend program intact, looks less scary at 107.7%. Management is confident of the company's ability to sustain, and even increase, the payout moving forward. That isn't just wishful thinking: Pfizer could improve its business in the coming years and eventually post much stronger financial results.
Source
Originally published at www.fool.com.