With a market capitalization of over $143 billion today, Pfizer (NYSE:PFE) Stocks will not make anyone a millionaire unless they are willing to invest a large amount of capital and then hold the stock for a very long period of time, reinvesting any dividends they receive along the way. Big pharmaceutical companies simply aren’t growing fast enough to provide investors with the huge returns needed to generate millions from a modest starting amount.
There is no indication that Pfizer is about to change its business model in a radical way, putting this dynamic to the test. Still, it can be a good option to strengthen your portfolio with assets that generate solid cash flow and can appreciate somewhat in value over time. This is why.
One of the most obvious ways a stock can help increase the value of your portfolio is by consistently paying dividends over time. Pfizer could very well fill that role, and now is a particularly attractive time to invest in it for that purpose.
The 6.5% forward dividend yield is pretty juicy. But – as its 100%-plus payout ratio indicates – the company paid out $9.4 billion in dividends over the trailing twelve-month period, while only reporting net income of $4.2 billion. While the operating cash flow of $11.2 billion over that period suggests there isn’t much immediate danger of the dividend being cut, it’s reasonable to expect the payment won’t increase by more than a token amount over the next few years. , when the overall financial situation is expected to improve.
One strategy to achieve that improvement is to pay down the debt the company took on as part of its acquisition of Seagen, an oncology biotechnology company. As of the third quarter, Pfizer had $56.9 billion in long-term debt and $9.7 billion in short-term debt with a one-year term. Per management, investments in internal research and development (R&D) will also pick up once the company deleverages more.
Even before that, the pipeline could deliver some drugs to help support sales, including several cancer drugs currently in phase 3 clinical trials. There’s not much reason to believe there are blockbusters in the pipeline right now, but steady production from more modest earners could still drive earnings and share price growth.
In the long term, the anti-obesity candidate, which is currently entering Phase 2 clinical trials, could be the blockbuster investors are looking for to help Pfizer grow a little faster. However, until interim efficacy results are determined and published, it makes sense to be skeptical about the candidate’s earning potential.
