Pfizer Inc. (PFE): Safe And Steady Dividends

Furthermore, Medivation has a few later stage pipeline therapeutics, talazoparib and pidilizumab, that could turn into blockbusters as well.

Talazoparib is a phase 3 breast cancer drug and pidilizumab is being tested to treat lymphoma.

All in all, Pfizer appears to be recovering well from the patent cliff a few years back by investing significant capital in R&D and acquisitions to rebuild the pipeline.

As long as management has allocated capital well by conducting in-depth market research and due diligence, the business should begin to return to organic growth after years of struggling.

Pfizer PFE Dividend

Source: Simply Safe Dividends

Dividend Safety Analysis: Pfizer

We analyze 25+ years of dividend data and 10+ years of fundamental data to understand the safety and growth prospects of a dividend. Exxon Mobil Corporation (NYSE:XOM)’s dividend and fundamental data charts can all be seen by clicking here.

Our Dividend Safety Score answers the question, “Is the current dividend payment safe?” We look at factors such as current and historical EPS and FCF payout ratios, debt levels, free cash flow generation, industry cyclicality, ROIC trends, and more.

Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score at least 60. Since tracking the data, companies cutting their dividends had an average Dividend Safety Score below 20 at the time of their dividend reduction announcements.

Dividend Safety

We wrote a detailed analysis reviewing how Dividend Safety Scores are calculated, what their track record has been, and how to use them for your portfolio here.

Pfizer’s Dividend Safety Score is 67, which indicates that the dividend is secure and much safer than the average dividend paying stock in the market. The key drivers of the company’s solid Dividend Safety Score include a conservative FCF payout ratio, a recession-resistant business model, and a healthy balance sheet.

While the earnings per share (EPS) payout ratio is very high and could be interpreted as signaling danger, the free cash flow payout ratio, which is a better indicator of Pfizer’s ability to pay dividends given the non-cash expenses it recorded in 2015, is healthy and more consistent with historical levels.

Pfizer PFE Dividend

Source: Simply Safe Dividends

Pfizer PFE Dividend

Source: Simply Safe Dividends

Currently, analysts expect Pfizer to generate EPS of $2.46 for 2016, and we expect Pfizer to pay out about $1.20 in dividends. This implies a payout ratio of about 49%, which is more in line with the historical free cash flow payout ratio.

Furthermore, Pfizer’s free cash flow payout ratio of 55% over the last 12 months is more or less right in line with other global pharmaceutical peers including Merck (46%) and Lilly (normalized in 40% range).