Pfizer's Dividend Yield Is 7.5%. Is It Still Safe?

5 hours ago 5

David Jagielski, The Motley Fool

Wed, Apr 30, 2025, 3:15 AM 4 min read

A precocious dividend output tin beryllium enticing, but it tin besides rise flags for income investors.
Pfizer's falling valuation has pushed its output up to good implicit 7%, which warrants a person look.
The company's payout ratio and escaped currency travel tin assistance investors measure the information of the dividend.

When a banal yields much than 5%, investors commencement to go skeptical astir whether the payout is so safe. While it's tempting to privation to judge that it tin beryllium harmless and that it tin beryllium an fantabulous root of aboriginal dividend income, you besides don't privation to get burned and spot that dividend get chopped oregon suspended.

Consider pharmaceutical elephantine Pfizer (NYSE: PFE). Its dividend output is astir 7.5% close now, and if the banal continues to decline, it whitethorn not beryllium agelong earlier it hits 8%. The large question is whether this is truly a bargain of a woody and a bully buy, oregon if Pfizer whitethorn soon person to trim its dividend?

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A bully starting constituent for investors successful analyzing a dividend banal is to look astatine its payout ratio. This considers the company's dividend with respect to its net per stock (EPS). The higher that EPS is successful narration to the dividend per share, the little the payout ratio, and the much sustainable the dividend is.

The institution presently pays a quarterly dividend of $0.43, which totals $1.72 for a afloat year. And successful 2024, Pfizer's diluted EPS came successful astatine conscionable $1.41 -- good beneath the complaint of its yearly dividend. However, this tin beryllium a spot misleading arsenic the institution incurred billions of dollars successful restructuring expenses and plus impairment charges. These are non-cash items, but they tin nevertheless interaction the bottommost enactment and marque the company's payout ratio look worse than it different would be.

That's wherefore I accidental the payout ratio tin beryllium a bully starting point erstwhile analyzing an income stock, but a precocious ratio doesn't mean that investors should presume that the dividend is doomed. A amended enactment whitethorn beryllium to look astatine the company's escaped currency flow.

Free currency travel tells investors however overmuch currency a institution is generating aft deducting superior expenditures. It's an important metric since it excludes the sound which often comes from non-cash items specified arsenic impairment charges and different non-recurring accounting adjustments.

Last year, Pfizer's escaped currency travel totaled $9.8 billion, and its currency dividend payments came successful astatine $9.5 billion. This suggests that the payout is so sustainable since Pfizer generated much escaped currency than what it paid retired successful dividends. There isn't a immense buffer there, but determination aren't large reddish flags, either.