Even before the COVID-19 pandemic hit, Pfizer (NYSE: PFE) investors were likely drawn to the stock’s solid dividend and history of annual payout increases.
Today, Pfizer yields 4.3% and has raised its dividend every year for 11 years.
Can it continue to do so? And will its COVID-19 vaccine help ensure that the dividend is paid and raised?
The drug giant saw declines in free cash flow starting in 2018, and only now is free cash flow expected to return to 2017 levels.
Pfizer’s payout ratio is very much under control. In 2020, the company paid out 69% of its free cash flow to shareholders in dividends.
Because free cash flow is forecast to rise to $14.8 billion this year, the company is projected to pay out just 59% of its free cash flow in dividends.
Generally speaking, a payout ratio below 75% of free cash flow is comfortable.
In 2020, Pfizer generated $42 billion in sales. This year, that number is expected to shoot higher to $62 billion.
Of that $20 billion increase, $15 billion will come from the company’s COVID-19 vaccine.
The following year, that figure is forecast to drop to $4 billion. Then, it’ll decline to $1 billion in 2023.
So this year, the vaccine will have a profound effect on Pfizer’s financials, though it will have a lesser impact the following years.
But Pfizer had no problem affording its dividend even before this windfall from the vaccine. Regardless of what happens with this particular vaccine going forward, Pfizer should have no problem paying and raising its dividend in the near and intermediate future.
Considering the company’s solid payout ratio, rising cash flow and decadelong history of raising its payout to shareholders, Pfizer’s dividend is safe regardless of the extra revenue from the vaccine.
Dividend Safety Rating: A
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Source: Wealthy Retirement