I'm Selling Pfizer in Case Spiking Volatility Gives Me a Chance to Buy Higher Yield and Growth
07/18/2014 5:10 pm EST
Since this drug company's acquisition bid fell through, coupled with the fact that he's got a good replacement up his sleeve, MoneyShow's Jim Jubak has decided to sell his shares of this pharmaceutical giant as of today, July 18.
I'm going to use today's (July 18) rather surprising upward move in US stocks-despite a big upswing in market nervousness yesterday-to sell Pfizer (PFE) out of my Dividend Income portfolio. (The Standard & Poor's 500 index was up 0.96% as of 3:00 PM New York time.)
After the failure of the big drug company's efforts to buy AstraZeneca (AZN), Pfizer seems a cash cow without a strategy. Not that the attempt to buy AstraZeneca was brilliantly creative-the deal would have let Pfizer move its tax-jurisdiction to the United Kingdom from the United States for huge savings. But it wouldn't have done much if anything to fix the combination of ineffective research and expiring patent protections (Celebrex, the company's $2.9 billion (in 2013 sales) arthritis blockbuster, is scheduled to go off patent in 2015) that are projected to slow sales growth to a crawl. Morningstar projects Pfizer's sales growth at 1% a year over the next decade; share buybacks will raise earnings per share growth to 3% a year. In its year-by-year earnings per share projections, Credit Suisse calls for earnings per share to grow to $2.24 in 2014 from $2.22 in 2013, and then to $2.30 in 2015, and $2.61 in 2016.
Even with a 3.4% current dividend yield, those projected growth figures don't add up to much in the way of upside capital appreciation.
If all I was looking for at the moment was safety, however, I'd consider hanging onto Pfizer.
But the combination of rising nervousness-the VIX volatility index climbed by 32% yesterday-and a rise in geopolitical tensions argue that I'd like to have a little cash on hand in case events in the Ukraine or in Gaze over the next few days result in a drop that might give me a buying opportunity in a dividend stock with a higher yield and better prospects for capital gains.
I would also probably hang onto Pfizer if I didn't have a good replacement up my sleeve-but I do (and I'll tell you what it is next week) and so it's time to sell with a small 0.63% loss in share price (made up for by that near 3.5% dividend) since I added these shares to the Dividend Income portfolio back on February 6, 2014.
The stock goes ex-dividend on July 30 in case that income in hand (as opposed to capital locked up in the share price) is important enough to lead you to think about putting off a sale. (Share prices do tend to drop after the payout to match the dividend payout. Otherwise, if you think about it, dividends would create value for investors out of what is actually a distribution of cash that lowers the balance in a company's treasury and raises it in shareholder wallets).
Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I managed, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund shut its doors at the end of May and my personal portfolio is now in cash. I anticipate putting those funds to work in the market over the next few months and when I do I'll disclose my positions here.