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Imagine a company whose stock that hit an all-time in December 2021, after soaring 50% that year. And that company’s sales doubled in the two years leading up to 2022. And its operating profits quadrupled.

Also imagine a company whose biggest product is set to see its sales collapse in the next three years from about $38 billion in 2022 to $10 billion in 2025.

Guess what? These two companies are actually one and the same: the pharmaceutical giant, Pfizer (PFE).

Pfizer’s fortunes soared during the pandemic, thanks to its partnership with BioNTech (BNTX) on the highly successful BNT162b2 COVID vaccine.

But what about post-pandemic Pfizer?

I believe this company is a perfect candidate for an equity income fund…or for an individual investor looking for a stock with rock-solid fundamentals and a nice dividend yield, which currently stands at nearly 4%.

Pfizer’s Fundamentals

Sure, Pfizer’s earnings are forecast to fall sharply in the current year—from $6.58 per share to about $3.62 a share. But that will still allow the dividend to move upwards with an acceptable level of cover. The payout ratio would rise to 46%, still well below Pfizer’s 10-year average ratio of 67%.

Other measures of Pfizer’s operating performance also show the company is quite healthy.

Sure, Pfizer’s 37% profit margin will no doubt shrink as demand for the COVID fades. But, if you take the longer-term view of Pfizer, you will see its profit margin has averaged 27% for the 10 years leading up to 2022. In that same period, Pfizer grew its revenue by a compounded 6.3% per year, and operating profits rose by 7.6% a year.

In the next year or so those long-term growth rates will slow a bit; however, they will still remain darn good. Wall Street forecasts are for Pfizer’s 2025 operating profit to be almost $24 billion (versus a peak of about $40 billion in 2022). That implies a nice, steady 10-year growth rate of 6.0% from 2015’s $13.3 billion.

If we peer ahead to 2025, Pfizer’s vaccine, BNT162b2, is likely to remain its biggest single revenue source. But Pfizer is much more than the vaccine, thanks to a portfolio of drugs that are either already approved by the FDA or are in the approval pipeline.

One such drug is Eliquis. This anticoagulant, which is a vast improvement on the older, more common warfarin, had sales of $6.5 billion in 2022. It may exceed $8 billion in sales by 2025. There is also Pfizer’s Prevnar group of vaccines, which protect against streptococcus bacteria.

Pfizer Refilling the Drug Pipeline

There is little doubt that Pfizer must refill its “medicine cabinet”—and quickly.

In addition to slowing COVID vaccine sales, Pfizer faces the loss of market exclusivity for several blockbuster drugs—including cancer medicines Xtandi and Ibrance—known as a “patent cliff.” This is expected to blow an additional $17 billion hole in Pfizer’s annual revenues by 2030.

So, Pfizer management is undertaking several moves…

First, the company is jumping into the weight loss drug sector. On December 12, it laid out plans to push ahead with a late-stage trial of an oral GLP-1 drug with potential to treat diabetes and obesity. At an investor event, the company touted the potential to claim $10 billion in annual sales by 2030. This once-a-day pill could gain a competitive advantage over weekly or monthly injections.

Pfizer has also agreed recently to acquire oncology-focused biotech firm Seagen (SGEN), for a total enterprise value of $43 billion. Seagen is a pioneer in antibody-drug conjugates (ADC), a class of drugs designed as a targeted therapy for cancer cells. They work by seeking and killing tumors without hurting healthy cells. Seagen’s four approved ADC drugs generated $4 billion in sales in 2022 and are considered first or best in class for the conditions they treat.

Complex manufacturing of these ADCs should reduce rivalry from generics. Pfizer believes the business could contribute more than $10 billion in risk-adjusted revenues by 2030, or about a seventh of today’s sales.

Pfizer CEO Albert Bourla said that oncology continues to be “the largest growth driver in global medicine,” so the deal contributed to the company’s near- and long-term financial goals. Pfizer already has 24 approved cancer medicines, and 33 others are in clinical development.

Add this all up and Pfizer looks like a good long-term investment for more conservative investors—despite Wall Street doubts. It’s especially promising since it is trading very near its 52-week low and back to levels not seen since 2021.

PFE can be bought anywhere around $40 a share, locking in that 4% dividend yield.

Investors never know for sure if a company is going to post better earnings results than expected. That’s why there are always earnings surprises. However, that doesn’t keep traders from making educated guesses. In the case of Amazon (AMZN), a trader recently purchased 17,000 bullish call spreads that expire the day after earnings come out.

High current yields and growing dividends are the cure for the directionless market. And if we are in for a “lost decade” from the stock market, yield plus growing dividends is one strategy that will still produce positive total returns. The strategy works in any market—bull, bear, or stagnant.

Let me show you.

Over the last few years, master limited partnerships (MLPs) focused on growing free cash flow, providing a higher level of coverage for dividend payments. Starting in around 2017, these companies spent their time building cash flow with little to no dividend growth.

MLPs operate in the energy midstream sector. These companies own and manage assets such as pipelines, processing plants, and terminals. MLP revenues come from long-term, fee-based contracts. The midstream sector generates much more stable revenue than upstream drilling companies and downstream refiners.

Unique among midstream companies is the use of the MLP structure. Investors are technically limited partners instead of shareholders. There are some tax implications to MLP ownership that I will touch on below.

But first, let’s talk about cash flow for the MLP sector. A recent VettaFi article reported that MLP sector dividend coverage increased from 1.4 times in 2018 to 2.3 times in 2022. The coverage is the ratio of free cash flow divided by the dividends paid to investors. Five years ago, 1.2 to 1.4 times coverage was considered adequate.

From 2020 through 2022, MLPs stopped or slowed dividend growth while their free cash flow continued to grow. The major companies in the group all followed the same strategy to increase financial stability. Starting this year, the major MLPs really started to increase the distributions paid to investors. Here are a couple of examples:

In November 2022, MPLX LP (MPLX) increased its dividend by 10%, compared to a 2.5% boost in 2021.

In April 2022, Western Midstream Partners LP (WES) increased its dividend by 53%. The payout had previously grown by less than one percent per year.

In January 2023, Plains All American Pipeline LP (PAA) increased its distribution by 23%. This was the second consecutive 20%-plus annual increase.

The Alerian MLP Infrastructure Index has a current yield of 7.9%. My research indicates the MLPs in the index are likely to grow their distributions by 8% to 10% per year going forward. A combination of 8% yield plus 8% dividend growth will produce mid-teens compounding annual returns over the long run.

Now, back to those tax implications: If you invest in an MLP, you will receive a Schedule K-1 for tax reporting. K-1 requires some extra work at tax time. Also, you should not own any K-1 MLP shares in a tax-qualified account such as an IRA; otherwise, there can be severe tax consequences.

On the plus side, MLP distributions are classified as a non-taxable return of capital. Instead, the distributions reduce your cost basis.

An MLP ETF allows you to receive a 1099 for taxes but also passes through the return of capital tax advantage. The Alerian MLP ETF (AMLP) tracks the index and currently yields 7.8%. The InfraCap MLP ETF (AMZA) is actively managed and pays stable monthly dividends. AMZA currently yields 8.8%.
You can collect 1 dividend check every day for LIFE. To get started, all you need is as little as $605. Out of 4,174 dividend stocks, there are only 33 you need to buy to collect. Click here to get the full details.