Novice Investing - Pfizer's Newest Painkiller

Date: Monday 01st 2008f December 2008 04:54:19 PM

Pfizer's Newest Painkiller - 12/14/2005

By: Novice Investing Staff

This week, Pfizer Inc. (PFE) announced the newest drug that will reduce pain for its shareholders. The name of this wonder drug is dividend. The company announced a 26% hike in dividend for the first quarter of 2006. Annual cash dividend will now amount to $ 0.96 per share up from $ 0.76 per share.

At a recent price of $ 23, Pfizer is yielding a healthy 4.17 %. In a rising rate environment, it is comforting to get an additional yield out of your investment. This is particularly needed for long time Pfizer investors as stock price has plunged to a 5 year low of $ 20 before the dividend-hike announcement. It seems like management was trying to attract more investors by announcing the hike when its share price was sluggish.

While we applaud management's decision to hike dividend, Pfizer's main problem remains. The cost of developing blockbuster drugs has risen to the billion dollar while generic competition put pressures on drug prices. Pfizer's free cash flow remains solid with dividends accounting less than half of it. The company has plenty of resources to build new pipelines or acquire other companies. Furthermore, it was repatriating over $ 37 Billion of overseas earnings this year. This is a lot of money to handle for some.

Pfizer has been investing a lot in Research & Development. It is raising R & D expense as profit grew, which is a wise decision. R & D expense has increased from $ 5.18 Billion in 2002 to $ 7.68 Billion in 2004. R & D for 2005 looks to be equal to or less than 2004 level. That is too bad. We estimate that Pfizer can increase its R & D to $ 10 Billion annually without crimping its balance sheet. Perhaps, it hasn't found suitable research to fund. Let's hope that they will spend on R & D when they have to. Pfizer's survival is dependent upon its innovation in finding breakthrough drugs.



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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Pfizer Inc. (PFE) or any other securities.

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