Pfizer Raises Dividend: Good News or Bad?

Last week pharmaceuticals giant Pfizer (PFE) raised distributions for a second year in a row. The company raised its dividend by 11.10% to 20 cents/ share. Pfizer cut its dividend in 2009 from 32 to 16 cents/share after it announced that it was acquiring rival Wyeth in a 68 billion dollar buyout. The company has tried to rebuild it history of consistent dividend increases over the past two years, which is a positive thing. Astute dividend investors however know that future dividend increases are supported by strong fundamentals. In Pfizer’s case, the company has a steep cliff of patent expirations on key drugs such as Lipitor in 2011 -2013. Lipitor, for example, accounts for 22% of revenues and its US patent expires in 2011. Analysts are expecting that cheaper generic drug substitutes to Lipitor would erode Pfizer’s market share, thus hurting profitability. Pfizer has been unable to bring in any significant blockbuster drugs to the market, which would have compensate for the losses from generic competition after patents on existing drugs expire. Instead, the company has embarked on a series of acquisitions over the past decade, by purchasing Warner-Lambert in 2000, Pharmacia in 2003 and Wyeth in 2009.These acquisitions have resulted in major cost synergies, but in no new drugs on the market. In Pfizer’s defense, in order for a new drug to appear on the market, there is a long and expensive process coupled with several FDA approvals. This being said, I would keep monitoring Pfizer’s business conditions, in order to be prepared to add it to my portfolio once it shows a decisive turnaround.... Read more