Pfizer Inc. (PFE) is my Top Pick for income-oriented investors in 2025. The past year was unkind to the pharmaceutical giant because it does not have diabetes or weight loss drugs in its portfolio. Despite its risks, Pfizer presents investors with a favorable risk-to-reward profile, suggests Prakash Kolli, editor of Dividend Power.
Sales of Pfizer’s Covid-19 vaccine and anti-viral therapies have declined from their peak, pressuring results. Hence, the share price dropped about 11% last year.
Yet Pfizer is a global pharmaceutical company that develops, markets, and sells a wide range of prescription drugs and vaccines. Besides its Covid-19-related franchise of Cominraty and Paxlovid, the firm markets multiple blockbuster drugs. They include Eliquis, Prevnar, Ibrance, Xtandi, Nurtex ODT/Vydura, and Vyndaquel/Vyndamax. It also sells many other therapies.
Plus, Pfizer used its Covid-19 bonanza to acquire smaller companies to restock its pipeline, which should generate significant growth. Since 2021, it acquired Trillium, Arena, ReViral, biohaven, GBT, and Seagen.
Revenue and earnings per share declined in 2023 after the Covid-19 spike. However, consensus estimates expect growth in 2024 and 2025 because of the existing pipeline. Future unannounced acquisitions may further enhance the pipeline. The firm has scale, financial resources, marketing and regulatory prowess, patents, and a distribution network to succeed.
That said, the firm faces regulatory risks with drug approvals, patent expirations, and generic and branded competition. These could all adversely impact future revenue and profit.
In addition, Pfizer has used debt to pursue acquisitions. Net debt has climbed, causing the leverage ratio to exceed 2.5X. It is currently about 3X. Pfizer is paying more interest, and its credit rating was lowered to A/A2, an upper-medium grade rating.
Pfizer has a dividend yield of around 6.7%. It is supported by a reasonable payout ratio of approximately 65%. In addition, the equity is a Dividend Contender with 14 years of increases. The growth rate is now around 2%-3% annually. The last increase was in December 2024.
The market has largely ignored Pfizer because of its focus on the Magnificent Seven and competing pharmaceutical companies. Consequently, the forward P/E ratio is approximately 8.8X, well below the range of the past five and ten years. Pfizer is a long-term buy.
