How Concerned Should Income Investors Be About Pfizer's Dividend?

Pfizer's stock price has plummeted more than 50% from its 2021 high, and its dividend payout ratio has surpassed 100%. Income investors might find the 6% yield appealing, but they should consider whether the dividend remains sustainable. The dividend is funded through cash flow, not earnings, so a high payout ratio doesn't necessarily mean the dividend is at risk.

Pfizer has $12.7 billion in cash and short-term investments, which could cover more than a year of dividend payments. The company has also stated its intention to maintain the dividend in the near term. Pfizer's challenges stem from patent expirations and a lack of new drug development, a common issue in the drug sector. However, given Pfizer's history of success, it is likely to navigate this issue and potentially find new blockbuster drugs.

The worst-case scenario might involve a dividend cut, but even a 50% reduction would still result in a high yield. Motley Fool Stock Advisor analysts did not include Pfizer among their top 10 recommendations, but they acknowledge that the current market conditions make it a potentially rewarding investment for those who can tolerate some uncertainty.