Pfizer Inc. (NYSE:PFE) is slipping in pre-market trading after announcing earnings that beat estimates on the bottom line, but missed on the revenue side. If you’re looking for growth, stay away from PFE stock. But if you’re looking to scoop up a dividend at a discount, Pfizer stock is for you.
Adjusted income was $4.19 billion, 69 cents per share, on revenue of $12.78 billion. This compared with net income of $4.17, 67 cents per share, and revenue of $13.01 billion during the same quarter a year ago.
Earnings beat analyst estimates by 2 cents per share, and even beat the “whisper number” of 68 cents. The revenue number, however, was well below the estimate of $13.05 billion, and even below last year’s figure.
As a result, PFE stock lost 35 cents per share, after dropping another 35 cents in trading on May 1. For those who buy stocks for capital appreciation, Pfizer once again proved a name to avoid.
For income investors, however, the result represents a great opportunity.
Pfizer for Income
Pfizer is an income stock, and its 32 cents per share dividend should represent a yield of 3.8% at its May 2 opening price of $33.40. Compare this to the 3% current yield on the U.S. 30-year bond, and remember that Pfizer stock is highly liquid, so if you want to grab a government bond as yields rise, you can quickly sell Pfizer to get it.
Pfizer has slowly but steadily raised its dividend since cutting it in half briefly in 2009. The dividend is covered more than twice by earnings, so it is safe.
This is not necessarily how Pfizer management would want things to be. In recent years, management has tried to write a growth story, or at least attach themselves to one.
In November 2015, Pfizer was prepared to merge with Allergan plc Ordinary Shares (NYSE:AGN) in a $160 billion deal that would have seen the nominal headquarters move to Ireland. That move was stopped by antitrust regulators.
Since then, Pfizer has reverted to type, acquiring Anacor Pharmaceuticals for $5.2 billion and Medivation for $14 billion. It also agreed to sell its Hospira Infusions Systems business to ICU Medical Systems for $1 billion in cash and stock.
There are persistent rumors Pfizer might make a run at Bristol-Myers Squibb Inc. (NYSE:BMY), which is worth $96 billion or roughly half what Pfizer is worth. But those remain rumors.
About that Quarter
The quarter was hurt by a slowdown in sales of Prevnar, the company’s vaccine for streptococcus in infants. Sales of the vaccine fell to $1.39 billion, against $1.5 billion a year ago. There remain people who are convinced that the vaccine causes autism. Sales of Lyrica, a drug for fibromyalgia, rose however, and the company is rolling out Eucrisa cream for dermatitis and Xtandi for prostate cancer.
Pfizer’s guidance for the rest of the year is full speed ahead. It projects full year revenue of $52 billion to $54 billion, and adjusted gross income of $2.50 to $2.60 per share, again double the dividend payout. In addition to the dividend, which cost $1.9 billion, Pfizer bought back $5 billion of its own shares and has plans to buy $6.4 billion more. This should keep the PFE stock price from falling far.
One other point made in the company’s earnings release: There was one less business day in 2017’s first quarter compared with 2016, and two fewer for international markets, which probably cost the quarter $300 million in sales.
Earnings hiccups like Pfizer’s first quarter are a great opportunity for income investors to get dividends on sale. Pfizer is the kind of company that go-go investors hate, but they can provide great income for retirement.
Dana Blankenhorn is a financial and technology journalist. He is the author of the political polemic Saving Trumpistan, Restoring Democracy, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
