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Is it true that the higher the dividend yield, the riskier the dividend? Not always. Some companies with exceptionally high dividend yields can easily afford to keep the dividends flowing.
Pfizer (NYSE: PFE) is in that group, in my opinion. The big drugmaker's forward dividend yield currently stands at just under 6%, and I think there are three factors that make its ultra-high-yield dividend safer than you might think.
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1. COVID-19
You might be surprised that I've put COVID-19 first on this list. Pfizer's sinking revenue, profits, and share price over the last few years have been primarily caused by the steep sales decline for its COVID-19 products.
But Pfizer's COVID-19 products remain a key source of revenue and cash flow for the company, and this helps bolster the drugmaker's dividend.
Unlike at the height of the pandemic, oral antiviral therapy Paxlovid is Pfizer's strongest COVID-19 product now instead of its Comirnaty vaccine. In the third quarter of 2024, Paxlovid raked in sales of $2.7 billion -- up a whopping $2.5 billion year over year.
Sure, this jaw-dropping increase was primarily due to no U.S. sales in the prior-year quarter in anticipation of the transition from U.S. government funding of COVID-19 vaccines to a commercial market. However, this in no way diminishes the importance of Paxlovid to Pfizer's financials.
What about Comirnaty? The vaccine generated sales of $1.4 billion in Q3, a 9% year-over-year increase. Pfizer expects the two products to deliver combined full-year sales of $10.5 billion, with $5.5 billion for Paxlovid and $5 billion for Comirnaty.
2. Assets to sell
Pfizer returned $7.1 billion to shareholders as cash dividends in the first nine months of 2024. During the same period, the company received roughly $6.9 billion of net cash proceeds from the sale of its shares of Haleon, a consumer health joint venture with GSK.
In Pfizer's Q3 earnings call with analysts, CFO David Denton mentioned the sale of a part of the company's Haleon stake in the context of debt reduction. But Pfizer's ability to monetize assets absolutely makes its dividend safer, especially considering Denton mentioned maintaining and growing the dividend as the company's first capital allocation priority.
Pfizer still owns around 15% of Haleon. Denton said in the earnings call that "we intend to monetize our remaining Haleon investment in a prudent fashion considering our cash flow requirements and future market conditions."