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It has long been a popular goal to have at least $1 million in the bank in retirement, but achieving this is not easy. One of the best ways to do this is by investing in stocks, and the sooner you start, the better. Of course, not all stocks are created equal, and while some will contribute substantially to making investors millionaires, others can do just the opposite.
Which of these categories does pharmaceutical giant Pfizer (NYSE:PFE) fall in? Let’s see if this drugmaker can help investors join the seven-figure club.
Pfizer’s business is improving despite appearances
Suppose an investor starts with a capital of €100,000 and has twenty years to reach €1 million. This would require a compound annual growth rate (CAGR) of 12.2%, which is not easy to achieve. Investors may be right to be skeptical about Pfizer’s ability to deliver such returns over the next two decades. First, the company’s performance this year has been catastrophic. Moreover, Pfizer has not been able to beat the market even in the last twenty years – quite the opposite, in fact.
However, if the past is not a reliable predictor of future success, past failures should not lead investors to conclude that Pfizer will continue to underperform the market in the long term. After all, a lot has happened to the drugmaker lately. CEO Albert Bourla said at the beginning of this year that Pfizer was entering the most crucial eighteen-month process in its (long) history.
Bourla talked about the series of brand new approvals and major label expansions the company was expecting this year, and so far things are going pretty much exactly as planned. Pfizer has launched seven new products, substantially exceeding its annual maximum of two. Pfizer’s pipeline is enormous and is only growing thanks to acquisitions, including that of a cancer expert Seagen.
Seagen has nearly 40 cancer-focused programs. This buyout could transform Pfizer into a leader in oncology, especially as it combines its deep pockets with Seagen’s proven innovative capabilities in this field. The $43 billion that Pfizer will pay in cash is possible thanks to its success in the COVID-19 market. So even though sales are down this year due to a slowdown in vaccinations, the drugmaker is building a solid foundation for the future.
Pfizer’s work in this sense did not begin with its coronavirus efforts. The company has significantly changed its operations in recent years, most notably by divesting some parts of its business that contributed little to revenue and profit growth. Pfizer is a much stronger company with better prospects than it was three years ago.
Dividends matter – a lot
In my opinion, Pfizer can deliver a fairly average stock market return over the next twenty years. However, there’s something else to consider when looking at a stock’s performance, especially over such long periods: dividends. Over the past twenty years, Pfizer’s returns with and without dividends (total returns including dividends) have been night and day.
Therefore, maintaining a solid dividend program could be a key factor in helping Pfizer turn investors into millionaires in the future. The drugmaker has increased its payouts by just under 58% over the past decade, which is decent. Pfizer’s current payout ratio of 112% also doesn’t inspire confidence; it indicates that the company’s current cash balance is not sufficient to cover its dividends. Should investors be concerned about that? I think the answer is no.
Pfizer generated a lot of money over the past two years thanks to its COVID-19 success, but spent much of it on acquisitions. Pfizer’s management aims to grow dividends over time. Once the company stabilizes, new products start to pull their weight and the company is no longer heavily affected by what happened in the last two years – which was very abnormal –. Pfizer’s cash payout ratio should return to a more reasonable level.
In short, Pfizer is still a good one dividend shares. Reinvesting the dividend should still be an excellent choice for long-term investors.
Don’t give up on Pfizer too quickly
While it’s true that Pfizer has had problems this year, the company still has a lot to offer investors. The demand for innovative therapies will increase over the next twenty years as the population ages. The drugmaker’s strengthening offering and pipeline, as well as its commitment to growing its dividend, should lead to much better performance soon. And I believe that it has an excellent chance of achieving a CAGR of 12.2% over the next twenty years. of dividends reinvested.
In short, Pfizer can help investors become millionaires.
Should you invest €1,000 in Pfizer now?
Consider the following before buying shares in Pfizer:
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Good luck Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has and recommends positions in Pfizer and Seagen. The Motley Fool has one disclosure policy.
Can Pfizer Stock Help You Become a Millionaire? was originally published by The Motley Fool