I am sure that you have heard of Pfizer (PFE) before. The company is the largest pharmaceutical company in the world with annual sales over $70 billion dollars. The company was a regular top performer year after year in the 80’s and 90’s. Today, Pfizer is no longer the growth company that it once was. Pfizer is a pure income play now with its days of double digit growth long behind it.
Shares of Pfizer currently trade at 8.3 times this year’s earnings and 8.2 times next year’s estimates. This P/E ratio is over 3 times the company’s growth rate. Growth is pegged at just 2.6% for the next five years which is actually an improvement over the previous five year’s growth of just 1.5%. Shares trade at 1.7 times book value, 2 times the company’s sales growth, and 14 times free cash flow.
Pfizer’s biggest strength is the company’s balance sheet. Pfizer has managed to beef up its already strong balance sheet over the past few quarters. The company has increased its cash position from $17 billion dollars to$23.2 billion dollars in cash. Free cash flow came in at just over $10 billion dollars for the past year. Margins are below the industry average at 17% and 9%. Return on equity is low at 8.2%.
Pfizer has become an attractive stock to income investors because of it steady stable revenue stream and solid dividend yield. Pfizer is a good dividend play with its 80 cent payout and 4.4% yield. The current payout rate is 37% of earnings and the stock’s yield is slightly lower than its 4.6% historical yield. The company should be able to steadily grow its dividend over the next few years as earnings slowly increase and the dividend payout ratio increases.
