Pfizer's Dividend Buffer Threatens Durability of Yield, Sparking Doubts
Pfizer Inc. (NYSE: PFE), the pharmaceutical giant, has been making headlines recently due to a combination of factors that are shaping its financial future.
In a strategic move, Pfizer partnered with BioNTech SE for the development and marketing of the COVID-19 vaccine. This partnership, along with potential renewals in the future, could be crucial depending on market and public health needs. However, uncertainties surrounding vaccination rates and potential reduction of government purchases may lead to continued pressure on Pfizer's COVID-19 sales.
One of the key indicators used to evaluate a company's financial capacity to pay future dividends is the Dividend Cushion Ratio (DCR). According to the DCR analysis, Pfizer's DCR is projected to decline significantly in 2025 and dip below the 1x threshold to around 0.9x. This decline is partly due to the company's latest financials and 2025 earnings projections.
Besides the uncertainties facing its COVID-related sales, Pfizer also faces ongoing issues such as tariffs and drug pricing policies. For instance, ongoing policy matters, such as IRA negotiations for Ibrance/Xtandi, tariff uncertainties regarding China, Canada, and Mexico, and Trump's latest MFN letter regarding drug pricing, further cloud Pfizer's earnings outlook.
However, there is a silver lining. The company could enjoy a lower tax rate due to the recent passing of the "One Big Beautiful Bill Act". Furthermore, Pfizer has started an aggressive cost reduction program, which has helped to mitigate the decline in its sales by lowering operating expenses.
Pfizer's dividend yield currently hovers around 7.15% on an FWD basis, significantly higher than the sector median of 1.41% and its own historical 5-year average of 4.74%. This high dividend yield can help put a floor for the share price amid these uncertainties.
Consensus now projects a normalized EPS of $0.72 for Q3. However, there have been 13 downward revisions vs. 2 upward revisions in Pfizer's earnings in the past 90 days. The company's upcoming earnings announcement is expected on October 29, 2025, and is dominated by downward revisions.
It's important to note that the long-term outlook for many of PFE's larger franchises remains uncertain due to upcoming patent expiration and competitive threats. This uncertainty, combined with the wide fluctuation in Pfizer's payout ratios, limits the insights these ratios can offer.
In Q1 2025, Pfizer's COVID-19 therapeutic sales plummeted about 76% on a year-over-year basis. This decline, along with the concerning signs shown by the DCR approach, suggests a more holistic evaluation is needed to fully understand Pfizer's financial position.
In an article titled "Pfizer Q2: Dividends Speak Louder Than EPS" on 8/6, Pfizer Inc. stock was rated as a sell. With the factors discussed above, it seems that Pfizer's financial future is indeed a complex and intriguing prospect for investors.
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