3 Reasons To buy Pfizer’s 4.1% Dividend – And 1 Not To…
With new cases of the coronavirus spiking in the US and worldwide.
With the already historic unemployment levels and job losses in recent months.
And with many Blue-Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number grows smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital.
And this is a huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in.
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Today, I want to show you 3 Reasons To buy Pfizer’s 4.1% Dividend – And 1 Not To…
Pfizer (PFE) is one of the worlds largest pharmaceutical companies with sales near $50 billion annually.
Its based in New York City New York. It has a $210.6 billion market cap. And it pays a 4.1% dividend… Which is reason #1 to consider buying its stock.
Pfizer’s 4.1% Dividend
Over the last decade Pfizer’s paid out a total of $10.80 per share in dividends.
At today’s share count of 5.624 billion shares that’s equal to $60.74 billion paid out to shareholders in that time.
Plus, it raised its dividend 108.3% in the last decade from $0.72 per share in 2010 to $1.50 per share now.
These dividend payments help you earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
It can do this because it earns huge profits. Which is reason #2 to buy Pfizer to Depression Proof Your Portfolio.
Pfizer Earns Huge Profits
Over the last decade it earned an average operating income margin of 27.2% per year.
I look for anything above 10% consistently.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 25.6% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and valuable.
Pfizer surpasses my thresholds for both important metrics by a huge margin making it not only a great operating business. But one of the most profitable in the world.
So, what about its debt?
Pfizer Has Reasonable Debt
Pfizer has $10.5 billion in cash compared to $61.5 billion in debt.
As a percentage of its balance sheet, total liabilities make up 63.5%.
Its debt makes up only 29.2% of its current market cap.
And its debt-to-equity ratio is 0.74.
These are all well below the minimum thresholds I look for when considering debt, cash, and balance sheet strength.
And this combined with its increased profits give a large margin of safety when considering buying Pfizer stock.
So far Pfizer looks like a good potential investment… But what about its valuation? Is it cheap?
Pfizer IS Not Cheap
With the markets at or near all-time highs you’d expect a good stock like Pfizer to be selling at an enormous valuation.
Unfortunately, it is.
As of this writing its P/E is 24.4.
Its P/CF is 16.9.
Its forward P/E is 11.8.
And its enterprise value to operating income – EV/EBIT is 25.8.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
This means, Pfizer is overvalued.
Which means buying its stock does not give you a margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Pfizer being overvalued right now it makes buying its stock riskier… And it also means you should expect to earn lower investment returns if you buy it now as well.
For this reason, I recommend you avoid buying Pfizer stock until its cheaper.
If you’re looking for a solid, safe, stable, dividend paying, and enormously profitable investment to buy to Depression Proof Your Portfolio – consider investing in Pfizer… But only when its cheaper.
Click here to see some of the stocks we recommend to Depression Proof Your Portfolio.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.