Is Pfizer Inc. (PFE) The Best Beaten Down Dividend Stock to Invest in Now?
We recently compiled a list of the 10 Best Beaten Down Dividend Stocks to Invest in Now. In this article, we are going to take a look at where Pfizer Inc. (NYSE:PFE) stands against the other beaten down dividend stocks.
Dividend stocks have faced challenges over the past year due to the rising focus on tech stocks. However, the value of income remains strong, and investors haven’t overlooked dividend equities. As a result, US companies are now more focused on dividends, offering substantial payouts to shareholders. In fact, many tech companies have begun issuing dividends this year, thanks to strong cash flow on their balance sheets. While they could reinvest in growth, sharing profits with shareholders has become an appealing strategy to attract investors.
This means that with the changing market dynamics, high-quality companies with strong balance sheets that are trading at lower multiples have become more appealing. Dividend stocks often fall into this category, as they typically have stable business models and cash flows that allow them to consistently return earnings to investors. Dan Lefkovitz, a strategist for Morningstar Indexes, also highlighted this in the firm’s latest report:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor. Dividend-paying stocks have a value bias. To the extent that there’s a rotation away from technology and growth into the value side of the market and more old economy sectors, that’s going to benefit the dividend-paying portion of the market.”
Another factor influencing the market trends is the Fed’s anticipated rate cuts. Investors believe the Fed is likely to start lowering interest rates in September, marking the beginning of a new easing cycle after one of its most aggressive tightening phases. The central bank began raising rates in March 2022 in response to soaring inflation, and they’ve remained at restrictive levels since July 2023. According to popular belief, dividend investors might benefit as rates decline. Lower rates can reduce bond yields, making dividend yields more appealing by comparison. In addition, companies with higher debt, such as utility companies and REITs, often benefit from falling rates and are typically among dividend payers.
If we set aside the impact of interest rates on dividend stocks, it becomes clear that they have made a substantial contribution regardless of market conditions. According to a study by S&P Dow Jones Indices, from 1926 to July 2023, dividends accounted for 32% of the broader market’s monthly total return, with the rest coming from capital appreciation. The report also underscored the power of compounding dividends. Without dividends, an initial investment in the stock market on January 1, 1930, would have grown to $214 by July 2023. However, with dividends reinvested, that same investment would have soared to $7,219 over the same period.
While there are encouraging signs for dividend stocks, they have struggled to keep pace with the broader market this year. The Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has gained nearly 9% in 2024, compared with over 16.5% return of the broader market. With this, we will take a look at some of the best beaten down dividend stocks to invest in.
Our Methodology:
To compile this list, we began by examining stocks that have experienced a decline from their peak prices within the past three years. From this pool, we selected 10 dividend-paying stocks that have witnessed a drop of 25% or greater in their share prices over these three years. The rankings within the list are based on the extent of the decrease in share prices from their three-year highs to their current levels, with the list arranged in ascending order of these declines as of August 30, 2024.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A medical technician wearing protective gloves and a mask mixing a biopharmaceutical solution.
Pfizer Inc. (NYSE:PFE)
3-year high-to-low share price decrease as of August 30: 51.7%
An American multinational pharmaceutical and biotech company, Pfizer Inc. (NYSE:PFE) ranks fifth on our list of the best beaten down dividend stocks. The stock is down by 18% in the past 12 months. The company’s recent performance has been closely tied to the success of its coronavirus vaccine, Comirnaty. In 2022, the vaccine helped generate over $100 billion in revenue, the highest in the company’s history. However, the demand for the vaccine hasn’t materialized after the pandemic years. Comirnaty sales in the second quarter of 2024 were only $195 million, a sharp 87% decline from the previous year, with no signs of a rebound expected.
According to analysts, if this specific factor is overlooked, Pfizer Inc. (NYSE:PFE) still has a strong potential for success, as reflected in its quarterly earnings. In the second quarter of 2024, the company reported $13.3 billion in revenue, a 4.3% increase compared to the same period last year. In addition, a robust 14% rise in operational revenue from non-COVID products during the second quarter demonstrated the company’s continued focus on effective commercial execution. Parnassus Investments also mentioned various reasons to add PFE to income portfolios, despite its recent underperformance. Here is what the firm has to say about the company in its Q1 2024 investor letter:
“During the quarter, we added new positions in Pfizer Inc. (NYSE:PFE), NICE and Charter Communications. We purchased Pfizer to capture the potential upside from any turnaround following the COVID-induced boom-bust cycle of the last few years. Pfizer’s stock price sank by more than 40% in 2023 as COVID-19 vaccine revenues rolled off, providing an attractive entry point for us. The company completed its acquisition of Seagen, which should strengthen Pfizer’s pipeline in antibody-drug conjugates (ADC). Pfizer also offers an attractive dividend yield.”
As mentioned in this investor letter, Pfizer Inc. (NYSE:PFE)’s dividend makes it an attractive investment among shareholders. The company has never missed a dividend in 85 years and maintains a 14-year track record of consistent dividend growth. It also remained committed to its shareholder obligation, returning $4.8 billion to investors through dividends in the first six months of 2024. Its quarterly dividend currently comes in at $0.42 per share for a dividend yield of 5.79%, as of August 30.
Pfizer Inc. (NYSE:PFE) was also popular among elite money managers, as hedge fund positions in the company jumped to 84 in Q2 2024, from 77 in the preceding quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a total value of more than $3.6 billion. Among these hedge funds, Ken Griffin’s Citadel Investment Group was the company’s leading stakeholder in Q2.
Overall PFE ranks 5th on our list of the best beaten down dividend stocks to invest in now. While we acknowledge the potential for PFE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PFE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.