How a Restructured Pfizer Will Pay Out Its Dividend
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Pfizer’s restructuring is intended to transform it into a dynamic growth business.
KENA BETANCUR/AFP via Getty ImagesIn the past year, Pfizer has paid out a generous 61% of its earnings as dividends to shareholders. Earlier this month, the drug giant executed a pivot aimed at making it a growth stock, by spinning off its slower-growing Upjohn products into Viatris, a business merged with Mylan.
What that means for shareholders’ income was analyzed in a Wednesday note from Morgan Stanley’s David Risinger. Pfizer (ticker: PFE) has said it will adjust its dividend downward next year, by the amount of the dividend investors will get from their new holdings of Viatris (VRTS). Going forward, Pfizer will modestly increase its dividend, but its payout ratio may shrink if its earnings grow as strongly as the company hopes.
Pfizer stock edged down in line with the S&P 500 on Wednesday, falling 0.2% to $36.53. That left the stock’s dividend yield at 4.1%. Viatris shares rose 1% to $17.07.
Pfizer has raised its annual dividend by 8 cents in each of the past two years, bringing it to a current level of $1.52 a share. Risinger expects that next month the company will add a penny to the quarterly dividend, representing a 4-cent annualized bump.
Executives have said they would keep investors’ payout stream whole for the Viatris deal. When Viatris pays its first dividend in next year’s first quarter, Pfizer will notch down its dividend by a corresponding amount. Risinger says that will probably mean a 10-cent reduction in Pfizer’s annual dividend, starting in April. That would leave the annual dividend at $1.46 a share.
For its part, Viatris has said it would pay out 25% of the $4 billion-plus in annual cash flow it expects to generate, producing $1 billion in dividend payments. That is a 5% yield on Viatris’s current value.
Pfizer’s restructuring is intended to transform it into a dynamic growth business, which will command a higher multiple on its earnings. Management plans to moderate its payout ratio to a mid-50s percentile more in line with Pfizer’s peers.
A big jump in Pfizer’s sales will happen soon, in fact, as it supplies more than a billion doses of the Covid-19 vaccine it developed with BioNTech (BNTX). But Risinger doesn’t expect the company to add that profit to its payout. He rates Pfizer stock at Equal-weight, with a price target of $42.
Write to Bill Alpert at william.alpert@barrons.com