Pfizer's Potential for Generating Millionaire Fortunes?
With an market cap surpassing $143 billion currently, Pfizer (PFE shedding -0.07%) isn't likely to turn a modest investor into a millionaire without a significant financial commitment and a considerable time frame, choosing to hold onto the stock and reinvesting dividends as they come. The pharmaceutical industry tends to develop at a moderate pace, preventing investors from profiting handsomely from a modest initial investment.
There's no clear indication that Pfizer will drastically alter its business strategy, which maintains this financial dynamic. Nonetheless, it could be an excellent choice for enhancing the diversity of your investment portfolio with an asset that guarantees a steady income stream and modest value appreciation over time. Here's why.
Various avenues for boosting wealth with this stock
One of the most straightforward methods for enhancing your portfolio's value is by earning a consistent payout through dividends over time. Pfizer may excel in this role, and right now is an enticing time to invest in it for this purpose.
Its forward dividend yield of 6.5% is quite impressive, but -- as its payout ratio of over 100% suggests -- throughout the previous 12-month span, the company had paid out $9.4 billion in dividends, contrasting with a net income of $4.2 billion. Although its operating cash flow of $11.2 billion for the same period suggests that there's little immediate danger of the dividend being reduced, anticipate that the payout won't increase significantly over the next couple of years or so, as its overall financial situation improves.
One strategy for driving that improvement is by reducing the debt it accrued during its acquisition of Seagen, an oncology biotech. As of the third quarter, Pfizer was carrying $56.9 billion in long-term debt and $9.7 billion in current debt due within the next year. Management has indicated that investment in internal research and development (R&D) will increase once the company is less indebted.
Even before that, the pipeline could be delivering a few medications to help bolster sales, including several cancer drugs that are currently in phase 3 clinical trials. While it's doubtful that Pfizer has any blockbuster drugs in its mid- to late-stage pipeline at the moment, a steady output of more modest income producers could drive growth in its earnings and share price.
In the long term, its obesity treatment candidate, scheduled to enter phase 2 clinical trials, may be the blockbuster that investors are seeking to help Pfizer grow at a faster pace. However, until the mid-stage effectiveness results appear and are published, it is wise to be skeptical about the candidate's earning potential.
The present opportunity won't persist eternally
One factor making Pfizer an appealing option for wealth-building is its valuation, which is currently lower than historically.
Over the past 10 years, its average price-to-sales (P/S) ratio was around 4, while its current ratio is 2.4. It's accurate that the company's trailing 12-month revenue of $59.3 billion is nowhere close to its 2022 peak of over $100.3 billion, and it's undeniable that it won't be able to generate overnight multi-billion-dollar hits like its coronavirus vaccine anymore. However, investors with a long-term perspective view the past windfalls as less significant than Pfizer's capacity to uniformly expand its revenue and earnings as they are at present.
In essence, even if this stock won't make you a millionaire, it could make you wealthier in case you invest now, at a reduced price, and as the near term seems promising. The core of the investment is that one of the world's leading pharmaceutical companies won't underperform perpetually, and by the time it stops, its valuation will be far more expensive than it currently is.
Investing in Pfizer's stock could be a strategy to boost diversification in your investment portfolio, providing a steady income stream and modest value appreciation over time. Despite its impressive forward dividend yield of 6.5%, its payout ratio exceeding 100% indicates a likely stable dividend payout, without significant increases in the short term.
Given Pfizer's current undervalued status with a lower price-to-sales ratio than its historical average, investing now at a reduced price could result in potential wealth growth as the pharmaceutical giant continues to expand its revenue and earnings over the long term.
