With £1,000, I’d buy 45 shares of this unloved dividend stock for a passive income boost

Despite falling vaccine sales, Stephen Wright thinks there’s a great passive income opportunity with Pfizer shares below pre-pandemic levels.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Engineer Project Manager Talks With Scientist working on Computer

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s fair to say the stock market has gone off Pfizer (NYSE:PFE) shares. But I think this could be a great stock to consider for investors looking to generate passive income.

Created with Highcharts 11.4.3Pfizer PriceZoom1M3M6MYTD1Y5Y10YALL25 Feb 201925 Feb 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

The stock is now trading 24% below its pre-pandemic levels. But while the company’s fortunes have waned, the 6% dividend yield looks like an opportunity to me.

Vaccine demand

Falling demand for Covid-19 vaccines is a big part of the reason the Pfizer share price has fallen. The firm is expecting only around 24% of the US population to receive boosters this year.

Should you invest £1,000 in BT right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if BT made the list?

See the 6 stocks

Obviously, that’s a significant decline. And the impact hasn’t just been in terms of lower revenues, but also non-cash charges for product write-offs affecting the company’s bottom line. 

The question for investors, though, is whether the business is really worth less than it was before the start of the pandemic. I don’t think this is the case.

Demand for Covid-19 vaccines might have fallen, but Pfizer has been investing its windfall for the long term. This includes the acquisitions of Seagen to boost its future pipeline.

Earnings outlook

Without deep specialist knowledge, assessing precisely the prospects of a big pharmaceutical company is difficult-to-impossible. And this is a risk investors should consider.

Arguably, though, when shares trade well below what they’re worth, a precise assessment isn’t necessary. A stock selling for £10 is clearly cheap whether its intrinsic value is £30 or £35.

I think this might be the case with Pfizer. At the moment, the share price is around $27, but the most conservative estimates forecast earnings of $2.22 this year, rising to $3.04 by 2027.

That implies a price-to-earnings (P/E) ratio of around 12 this year, falling to nine within three years. And there’s another reason to be optimistic about the company’s prospects.

Size and strength

A common argument against investing in big pharmaceutical firms is their size makes it hard to generate meaningful growth. There’s some truth to this, but size also has its advantages.

In other sectors, larger companies with bigger balance sheets seem to be using their size to their advantage. This has been the case in both technology and energy.

Microsoft, Alphabet, Meta, and Nvidia have been dominating the AI space and ExxonMobil and Chevron have been expanding aggressively in oil. And a lot of this has been via acquisitions.

This illustrates the advantage of size and scale. And with healthcare, I think Pfizer has a similar advantage at a P/E ratio that looks like a bargain compared to the big tech and energy stocks.

A buying opportunity?

I think Pfizer shares look like a great long-term opportunity. It looks to me as though there’s a real chance the stock market is overlooking the company’s medium-term earnings potential.

Without a more thorough specialist assessment, I wouldn’t go all-in on the stock. But I think investing £1,000 to add 45 shares to my investment portfolio could be a really good move.

I’m not anticipating huge forward growth from a $155bn company. At today’s prices, though, I don’t think it needs it and I expect Pfizer’s size to help it maintain its position for some time.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet, Meta Platforms, Microsoft, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Man smiling and working on laptop
Investing Articles

3 FTSE 250 shares with low P/E ratios and sky-high dividend yields!

Searching for the best bargains that London has to offer? Here's a handful from the FTSE 250 I think are…

Read more »

Investing Articles

Why is Apple stock lagging the S&P 500 in 2025?

Our writer is wondering whether now might be an opportune time to snap up shares of the largest company in…

Read more »

Investing Articles

Here’s how an ISA investor could build a £20k passive income with UK shares

Looking to make a five-figure passive income in retirement? Here's how a blend of UK shares and cash savings could…

Read more »

Investing Articles

£10,000 in savings? Here’s how an investor can target £3,560 in annual passive income

Paul Summers explains how an investor could target making thousands of pounds in passive income by holding great dividend stocks…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Up 490%, Lion Finance Group is a new name on the FTSE 250… but what is it?

Many investors won’t be familiar with Lion Finance Group, but the FTSE 250 stock has surged 490% over five years.…

Read more »

Growth Shares

I think this is the most punished FTSE stock in the market right now

Jon Smith talks through a FTSE company that has endured problems but is one he believes has a brighter future…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Stock market correction! 1 growth share down 53% to consider buying now

This writer highlights a growth stock that has hit a rough patch in recent weeks. Here's why it might be…

Read more »

Investing Articles

Here’s why the Tesco share price has dropped 18% in a month!

Tesco's share price has lost nearly a fifth of its value since mid-February. Is this FTSE 100 dividend stock now…

Read more »