Pfizer (NYSE:PFE) Is Paying Out A Larger Dividend Than Last Year

Pfizer Inc. (NYSE:PFE) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of March to $0.43. This will take the annual payment to 6.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Pfizer

Pfizer's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, the company was paying out 221% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Over the next year, EPS is forecast to expand rapidly. If the dividend continues along recent trends, we believe we could see the payout ratio reaching 77%, which is definitely on the higher side, but still sustainable.

Pfizer Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.04 in 2014 to the most recent total annual payment of $1.72. This means that it has been growing its distributions at 5.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Pfizer's earnings per share has shrunk at 23% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Pfizer's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Pfizer will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Pfizer is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 4 warning signs for Pfizer (of which 2 can't be ignored!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.