Better Dividend Stock to Buy: AbbVie Inc. vs. Pfizer Inc.
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Big dividends are getting hard to find, but a couple pharma stocks are offering juicy yields at recent prices. Shares of Pfizer Inc. (NYSE: PFE) pay a nice 3.8%, and AbbVie Inc. (NYSE: ABBV) looks even more tempting with a 4.1% yield at recent prices.
A larger dividend up front won't help you if it doesn't grow, and both of these companies face challenges ahead that could make steady payout bumps difficult or even impossible. Exciting new drugs in development could save the day and keep the distributions growing steadily. Let's stack the pair side by side to see which has a better chance of coming out ahead.
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In the numbers
America's largest pharmaceutical company offers a nice yield now, but its history isn't too reassuring. It's only been about nine years since generic competition for blockbuster drugs forced Pfizer to slash its payout. Also, the company has steadily raised its dividend at a respectable 7.8% annual rate over the past five years, making this year's 6.3% bump a bit of a letdown.
| Company | Latest Dividend Bump | Total Share Repurchase Authority | Repurchase Authority as a Percentage of Market Cap |
|---|---|---|---|
| AbbVie Inc. | 35% | $10 billion | 7% |
| Pfizer Inc. | 6% | $16 billion | 8% |
Data source: Company SEC filings.
Rather than commit to a dividend that could be difficult to maintain during an uncertain future, Pfizer beefed up its share repurchase program. AbbVie's share repurchase program is a step behind Pfizer's, but its distribution's grown by leaps and bounds since the company's 2013 debut.
Pfizer expects total revenue to rise just 4% this year, but buybacks will help adjusted earnings grow 11% in 2017 to $2.65 per share, which is the same pace earnings rose last year. With an annualized payout of just $1.36 per share, Pfizer has a lot of room to make big increases even if earnings hit the low end of its guided range for 2018: $2.90 per share.
This impressive performance pales in comparison to AbbVie's. The company raised adjusted earnings 16% to $5.60 last year and management expects a huge jump to $7.33 per share this year. With its dividend at an annualized $3.84 per share, AbbVie can probably afford to make some more sizable payout bumps in the years ahead.
Going down
Pfizer claims that generic competition following patent expirations for various products led to $2.1 billion in lost revenue last year. Teva launched a generic version of Viagra in December and Lyrica could become vulnerable this December. From this year forward, generic competition around the globe will impact products that were responsible for around 14% of last year's total revenue.