Pfizer's 7% Dividend: Income Gem or Value Trap?

Pfizer (PFE 0.55%) has become the dividend investor’s siren song. With shares down 31% over the past five years and a current yield of 7%, the pharmaceutical giant offers one of the juiciest payouts in the entire healthcare sector.

For income-hungry investors watching bonds yield 4% to 5%, Pfizer’s dividend may look irresistible. But before backing up the truck for that nearly 7% yield, you need to ask whether this is a value trap disguised as a high-powered income opportunity.

The dividend math works — for now

Pfizer’s quarterly dividend of $0.43 per share translates to $1.72 annually, producing that eye-catching 7% yield at today’s share price of around $25. The company has paid dividends for 345 consecutive quarters and raised them annually for 16 years, though recent increases have been minimal — just 2.4% heading into 2025, lifting the quarterly payout from $0.42 to $0.43. Worth noting: Pfizer froze its dividend in 2010 during the Wyeth merger integration, reminding investors that management will prioritize the health of its balance sheet when necessary.

The payout ratio tells a more nuanced story. After spiking above 100% during the COVID-19 revenue cliff — when vaccine and Paxlovid sales collapsed from their $90 billion peak — the ratio has moderated to 89% based on trailing earnings. Management projects adjusted earnings of $2.90 to $3.10 per share for 2025, which would bring the payout ratio down to a more comfortable range of 55% to 59%, assuming the company hits its guidance midpoint.

But patent cliffs loom large for investors. Pfizer faces key patent expirations on major drugs — Ibrance in 2027, Eliquis in 2028, and potentially Vyndaqel in the coming years. Altogether, products facing loss of exclusivity could account for nearly 30% of Pfizer’s current annual revenue, including not only those three blockbusters but also other at-risk brands. Management’s $7.2 billion cost-cutting program helps, but cost cuts may buy time without offsetting structural revenue losses.

Pipeline promises fall short

Bulls point to Pfizer’s $43 billion Seagen acquisition as evidence of pipeline renewal. The oncology-focused biotech brings promising antibody-drug conjugates, with bladder cancer drug Padcev expected to drive growth. Management projects $10 billion in Seagen revenue by 2030, though Wall Street estimates sit closer to $7 billion or $8 billion.

The organic pipeline looks less inspiring. High-profile failures like obesity drug danuglipron highlight the challenges. Pfizer discontinued the program due to concerns about liver toxicity, missing out on what could become a $200 billion market by 2031. COVID-related products have stabilized at around $5 billion to $6 billion annually, but offer no growth catalyst. Recent authorizations by the Food and Drug Administration (FDA) that limit vaccines to high-risk populations further cap upside.

Other programs like RSV vaccines, mRNA influenza shots, and combination mRNA vaccines (flu plus COVID) are in late-stage trials, but analysts view their commercial potential as incremental rather than transformative. None approaches the scale of what’s being lost to patent expiries.

When high yield signals high risk

A 7% yield in today’s market screams either opportunity or danger — rarely both. Pfizer trades at just 8.1 times forward earnings, reflecting the market’s skepticism. Wall Street projects that earnings will decline 3% annually through 2029, hardly a profile for dividend growth.

A comparison to peers is telling. Johnson & Johnson yields 2.9% with a fortress balance sheet. AbbVie offers 3.1% with Humira’s biosimilar transition largely behind it. Merck yields 3.9% with Keytruda still growing rapidly. These companies provide lower yields, but greater dividend security.

For Pfizer, the dividend appears safe through 2026 based on current cash generation. But as patent losses accelerate and pipeline programs remain uncertain, the board will face tough decisions. A dividend cut isn’t imminent, but neither is worthwhile dividend growth. The dividend’s safety is medium-term strong but long-term questionable.

Buying Pfizer solely for its dividend is betting that management can navigate patent cliffs, pipeline setbacks, a possible high-dollar acquisition in obesity, and cost restructuring — all at once. The 7% yield compensates investors for real risks, not abundant free cash flow.

The payout will likely survive the next few years, perhaps with token increases, but the long-term outlook is far less certain. Pfizer’s 7% dividend is less a gift than a warning label — sustainable for now, but not built for growth.