{"id":14415,"date":"2025-05-01T06:31:15","date_gmt":"2025-05-01T06:31:15","guid":{"rendered":"https:\/\/finderica.com\/?p=14415"},"modified":"2025-05-01T06:31:15","modified_gmt":"2025-05-01T06:31:15","slug":"could-pfizers-7-1-yield-be-a-trap","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=14415","title":{"rendered":"Could Pfizer\u2019s 7.1% Yield Be a Trap?"},"content":{"rendered":"
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In The Oxford Clubroom a few weeks ago, I was asked for my thoughts on Pfizer<\/strong> (NYSE: PFE), which has a huge yield for a blue chip company.<\/p>\n

I mentioned that I think the stock is a value trap, as earnings are projected to fall over the next 10 years. The stock has been a dog for 3 1\/2 years since reaching its all-time high in late 2021. Today, it trades at less than half that level.<\/p>\n

Nevertheless, it\u2019s easy to understand why income investors are interested in Pfizer. With a current yield of 7.1%, it\u2019s one of the highest-yielding stocks in the S&P 500.<\/p>\n

Let\u2019s dig into the dividend and see whether it\u2019s in any better shape than the stock.<\/p>\n

From a cash flow perspective, Pfizer is a victim of its own success. The COVID-19 vaccine generated huge amounts of free cash flow in 2021 and 2022. Since then, the company\u2019s cash flow has evaporated.<\/p>\n

After hitting a peak of $29.9 billion in 2021, free cash flow plummeted to just $4.8 billion in 2023.<\/p>\n

Last year, free cash flow more than doubled to $9.8 billion, but that was still lower than any year in the past decade other than 2023. This year, it is forecast to grow sharply again to $17.7 billion.<\/p>\n

\"Chart:<\/a><\/p>\n

While this year\u2019s free cash flow is projected to jump from last year\u2019s and be higher than any non-pandemic year\u2019s, the dividend safety rating gets a penalty because of the negative three-year growth. Next year, that will change when the 2022 vaccine windfall ages out of the model. But for now, it lowers the dividend safety by one notch.<\/p>\n

<\/a>Another issue is last year\u2019s payout ratio. Pfizer paid shareholders $9.5 billion in dividends out of its $9.8 billion in free cash flow. A 97% payout ratio is too high.<\/p>\n

However, because of this year\u2019s anticipated free cash flow growth, the payout ratio is expected to shrink to a more comfortable 54%.<\/p>\n

After cutting its dividend in half during the global financial crisis, Pfizer has raised its dividend every year since 2010. That 16-year streak earns the company a bonus point.<\/p>\n

If Pfizer is able to deliver anything close to the cash flow numbers that are forecast for 2025, its dividend should be considered safe. However, a repeat of 2024 would mean the payout ratio would be too high once again, and that would put the dividend at risk.<\/p>\n

But for now, the probability of a dividend cut is low.<\/p>\n

The dividend appears to be in better shape than the stock.<\/p>\n

Dividend Safety Rating: B<\/strong><\/p>\n

\"Dividend<\/p>\n

What stock\u2019s dividend safety would you like me to analyze next? Leave the ticker in the comments section.<\/p>\n

You can also take a look to see whether we\u2019ve written about your favorite stock recently. Just click on the word \u201cSearch\u201d at the top right part of the Wealthy Retirement<\/em> homepage, type in the company name, and hit \u201cEnter.\u201d<\/p>\n

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.<\/p>\n<\/p><\/div>\n