Pfizer’s High-Yield Dividend Attracts Investor Scrutiny

Pfizer Inc. is currently a focal point for income-focused investors, offering a forward dividend yield of approximately 6.9%. This positions the pharmaceutical giant as one of the most compelling dividend payers in the healthcare sector. However, the sustainability of this payout is under debate due to the company's exceptionally high payout ratio.

The stock's valuation appears reasonable, with a price-to-earnings (P/E) ratio of 14.93. This suggests the market has already accounted for challenges such as patent expirations and the integration of newer products. The key support for the dividend is the company's solid free cash flow. Yet, the payout ratio stands at 99.4%, meaning Pfizer is distributing nearly all its profits to shareholders. For illustration, a $10,000 investment would generate roughly $690 in annual passive income based on the current yield.

Institutional Sentiment Reveals a Split

Recent regulatory filings reveal a divergence in opinion among major institutional investors. In the third quarter, Aviance Capital Partners increased its stake by 41.6%, purchasing over 41,000 additional shares. Conversely, Bank Hapoalim reduced its position by 38.4%, selling around 42,700 shares. These opposing moves highlight differing views on Pfizer's future trajectory, with some asset managers banking on long-term value creation while others are securing profits following a significant share price recovery.

Should investors sell immediately? Or is it worth buying Pfizer?

Strategic Moves Beyond the Core Business

Pfizer is actively optimizing its asset portfolio. In early January, the company entered a global licensing agreement with Madrigal Pharmaceuticals, securing an upfront payment of $50 million. The deal grants Pfizer rights to Ervogastat, a DGAT-2 inhibitor for treating MASH (metabolic dysfunction-associated steatohepatitis). This strategy allows Pfizer to monetize non-core assets while retaining future economic interest through milestone payments and royalties.

Furthermore, the company recently announced positive Phase 3 data for Braftovi in treating metastatic colorectal cancer, which supports the drug's improved response rate.

A Defensive Stock with a Key Caveat

Trading at $25.65, Pfizer's share price is hovering just below its 52-week high of $25.89. For a defensive healthcare stock offering a near 7% yield, the valuation seems fair. The Madrigal agreement demonstrates pragmatic management focused on generating liquidity. Nevertheless, the nearly 100% payout ratio remains a critical concern. The dividend's future reliability is heavily dependent on the company's ability to consistently maintain robust free cash flow.