Pfizer Ends 40 Year Run of Hiking Dividends

For months now several analysts have been pointing out that despite big pharma's many problems, some of the companies still pay healthy dividends. And when T-bills are offering next to nothing, a solid dividend yield in these rough and tumble times is a good thing.

Late Monday, Eli Lilly (LLY) increased its dividend. Pifzer (PFE) also announced that for the 281st straight quarter, it was paying a dividend. But, as Miller Tabak healthcare analyst Les Funtleyder pointed out in a research note to clients Tuesday morning, this is the first time in 40 years that PFE isn't hiking the payout. PFE's dividend yield is already the highest in the sector--pushing eight percent.

Funtleyder says Pfizer's standing pat can be viewed two ways. On the one hand he wrote, "The dividend is still above seven percent which makes the company seem almost distressed." But on the other hand Funtleyder said, "Despite the company's (approximately) $27 billion in net cash...they might be penalized for using any cash. The longer the cost of capital stays high, the more cash on a balance sheet becomes a competitive advantage. Should we be in for a prolonged lull in the capital raising cycle, PFE may be able to buy its way out of some of its pipeline deficiency."

If that's the case, Pfizer's got a lot of shopping to do. In a couple of years the 13-billion-dollar-a-year Lipitor goes generic. And PFE doesn't have anything that comes close to replacing it. Whether it's Pfizer, Merck (MRK) or whoever, I'm waiting for a wave of deals--big and small--to get done to help the industry cushion the fall from what insiders refer to as the looming "patent cliff." In fact, Deutsche Bank's Barbara Ryan is holding a conference call for clients today to talk about her big pharma M&A scenarios.

Perhaps because of their big dividends, big pharma blue-chips were reportedly among the stocks Bernie Madoff allegedly bought for his clients. I only mention that because I'm sitting outside the federal courthouse waiting for the disgraced money manager to possibly make an appearance.

Comments

[Ax:]

It's two years since the Lipitor news plagued Pfizer. Now, find something new to write about. It's really impressive you don't seem to find any new perspective on this drug company.

2008 Dec 17 11:15 AM

[Dan Jacome:]

BIIB as bait?

2008 Dec 17 12:06 PM