Health care isn't the first sector that income investors look to for high dividend yields. Healthcare ranks 8th out of 11 S&P 500 sectors ranked based on average dividend yield.
However, many healthcare stocks offer impressive dividends. Some are good choices, some are not. Here's one super-high-yield healthcare stock to buy empty-handed and avoid.
buy pfizer
Some investors may consider Pfizer (New York Stock Exchange: PFE) Healthcare stocks should be avoided, rather than bought empty-handed. One need only look at the drug company's recent history to understand that perspective. Pfizer's stock price has fallen more than 50% from its all-time high in late 2021. Stocks have risen this year, but the gains have been modest and are barely in positive territory, well behind the strong returns of the S&P 500.
The main reason for Pfizer's dismal performance is its coronavirus vaccine, Komilnati. In 2022, Komilnati's revenue was $37.8 billion. Pfizer expects vaccine revenue to be just $5 billion in 2024.
To make matters worse, Pfizer faces a looming patent cliff. Kidney cancer treatment Inrita and autoimmune disease treatment Xeljanz will lose their patent exclusivity next year. The patents for the breast cancer drug Ibrance and the prostate cancer drug Xtandi expire in 2027. Blood thinner Eliquis will face competition from biosimilars by 2028. Assuming Pfizer wins a patent extension, the rare disease drug Vindaquel will go off-patent in 2028.
With all this in mind, should income investors be concerned about Pfizer's sky-high 5.66% dividend yield? i don't think so. In fact, I think Pfizer is a wise choice for those looking for income. Pharmaceutical companies have made maintaining and increasing dividends a top priority in capital allocation.
More importantly, Pfizer's future should be brighter than it first appears. The company returned to year-over-year revenue growth in Q2 2024 for the first time since Q4 2022. Management expects to achieve solid growth in the second half of 2020 thanks to several new products introduced to the market.
Pfizer's pipeline also includes some potential big winners. The company's experimental obesity drug danuglipron looks promising. This year, the company advanced late-stage trials of three new cancer drugs: sigvotatug vedotin, atrimociclib, and mevrometostat.
Many investors believe that Pfizer's stock price, trading at just 10.5 times expected earnings, will continue to be weak. I believe this is an attractive valuation for a company with a long track record of resilience, improving growth prospects, and an excellent dividend.
story continues
Avoid Walgreens Boots Alliance
I used a stock screening tool to identify healthcare stocks with the highest dividend yields. Only one stock ranks higher than Walgreens Boots Alliance. (NASDAQ:WBA). Pharmacy retailers and wholesalers have a forward dividend yield of over 9%.
Should income investors hop on the Walgreens train to get that sky-high dividend? We do not recommend doing so.
Walgreens' problems make Pfizer look like a superstar by comparison. Pharmacy stocks are nearly 80% below their three-year high. Walgreens lost more than half of its market capitalization in 2024 alone.
While Pfizer's financial situation is improving, Walgreens' financial situation is heading in the wrong direction. The company's adjusted earnings per share fell 40.8% year-over-year in the latest quarter. Walgreens expects its 2025 profit to decline further.
CEO Tim Wentworth said on a recent earnings call that about 2,000 of Walgreens' more than 8,000 stores are not profitable. That's not good.
Can Walgreens turn things around? perhaps. The company expects to close about 1,200 unprofitable stores over the next three years. Walgreens is also working to reduce costs in other ways.
But it's hard to imagine income investors feeling cold about Walgreens' dividend. Asked about the dividend on the earnings call, Wentworth said: “We will continue to monitor it and make changes to our capital allocation. If we feel it is appropriate, we will adjust the dividend to align with our long-term profitability.” “Including doing things.” to do. ”It seems to me that a dividend cut could be on the horizon.
Some aggressive investors looking for a turnaround strategy may find Walgreens worth considering. But for other investors, it's probably best to take a wait-and-see approach to this stock.
Should I invest $1,000 in Pfizer right now?
Before purchasing Pfizer stock, consider the following:
Motley Fool Stock Advisor's team of analysts has identified the 10 best stocks for investors to buy right now. Pfizer was not among them. These 10 stocks have the potential to generate impressive returns over the next few years.
Consider when Nvidia created this list on April 15, 2005… If you invested $1,000 at the time of recommendation, you would have earned $845,679.!*
Stock Advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month. of stock advisor For the service more than 4 times The resurgence of the S&P 500 since 2002*.
See 10 stocks »
*Stock Advisor will return as of October 14, 2024
Keith Speights has a position at Pfizer. The Motley Fool has a position in and recommends Pfizer. The Motley Fool has a disclosure policy.
1 Super High Yield Healthcare Stocks to Buy and 1 to Avoid was originally published by The Motley Fool.
