Dividend stocks can be a dependable source of passive income for income-seeking investors. Furthermore, some of these stocks also allow for long-term capital appreciation.
In particular, dividend-paying stocks with high yields are popular among income-seeking investors. However, is a high yield a compelling enough reason to purchase a dividend stock? Let's look at these two high-yielding stocks, Altria Group (MO) and Pfizer (PFE), to see whether they're good investments aside from their dividends right now.
Altria Stock: Dividend Yield of 9.9%
The consumer staples company Altria Group (MO) is a prominent player in the tobacco and related products industry. Its brands, such as Marlboro, Copenhagen, and Skoal, are well-known globally.
Despite being generally reviled, the tobacco industry has historically been profitable as a recession-proof product. As cigarette consumption declines, tobacco companies such as Altria are shifting to alternative products. Altria has evolved to meet changing consumer demands by making investments in alternative products like smokeless tobacco, e-cigarettes, and cannabis. However, these investments did not yield the expected results.
Valued at $70 billion by market cap, Altria’s stock is down 1.5% year-to-date, while the S&P 500 Index ($SPX) is up 8.2%.
For the full year 2023, Altria’s net revenue dipped slightly by 0.9% to $20.5 billion. However, adjusted diluted earnings per share (EPS) increased by 2.3% to $4.95. The company paid out $6.8 billion in dividends in 2023.
Altria has a whopping 9.9% dividend yield, which is significantly higher than the consumer staples sector average of 1.9%. While the yield is certainly appealing, consistency in dividend payments is a crucial attribute of a good dividend stock. Altria has earned the prestigious title of "Dividend King." These are the companies that have consistently increased their dividends for at least 50 years - or in Altria's case, 55 years.
Furthermore, Altria intends to raise its dividend annually by mid-single digits until 2028. The company's forward dividend payout ratio of 74.8% is high, but may be sustainable if the company continues to increase its earnings. Altria's goals also include achieving compounded annual growth rates in the mid-single digits for earnings by 2028.
In 2024, the tobacco giant expects EPS to range from $5.00 to $5.15, representing a 1% to 4% year-over-year increase. By comparison, analysts predict Altria's earnings will rise by 1.9% in 2024 and 3.9% in 2025.
Is Altria Stock a Buy, According to Wall Street?
Overall, Wall Street rates Altria stock a “hold.” Out of the 11 analysts that cover the stock, four rate it a “strong buy,” five rate it a "hold,” and two rate it a “strong sell.” The average target price of $46.01 implies an upside of 15.8% from current levels. The Street-high target of $50 suggests a stock price increase of 25.8% in the next 12 months.
Pfizer Stock: Dividend Yield of 6.5%
Founded in 1849, global pharmaceutical giant Pfizer (PFE) has a legacy of innovation. The post-pandemic market may have weighed on Pfizer's shares, as demand for its COVID-19 vaccines began to decline. Nonetheless, Pfizer has a history of developing some of the most transformative medicines on the market, and it will undoubtedly continue to do so.
Pfizer's stock has fallen 48.5% in the past two years. The stock is down 10% YTD, compared to the broader market's gain of 8.2%.
Total revenue at Pfizer fell 41% year-over-year in 2023, due to lower sales of Comirnaty and Paxlovid (used to treat the novel coronavirus). However, excluding COVID products, revenue increased by 7% to $58.5 billion in 2022. Adjusted EPS fell 72% year-over-year to $1.84.
In 2023, the company also completed the Seagen acquisition, which will help to strengthen its oncology portfolio. Moreover, the company is confident that new product launches and the Seagen acquisition will drive future revenue and profits. The company received U.S. Food and Drug Administration (FDA) approval for nine new products in 2023.
Pfizer expects 2024 revenue to be flat or increase by 5% to $58.5 billion to $61.5 billion, with earnings growth of 11.4% to 22.3%. The company is also on track to report annual net cost savings of about $4 billion by the end of 2024.
In 2023, Pfizer distributed $9.2 billion in dividends. It pays a dividend yield of 6.5%, compared to the healthcare sector average of 1.6%. While Pfizer is not a Dividend King like Altria, it has increased dividends consistently for the past 14 years. Furthermore, its forward payout ratio of 61% appears to be sustainable, with the potential for further increases as earnings rise.
Looking ahead, analysts expect Pfizer’s revenue to increase by 2.5% to $60 billion in 2024, accompanied by 20.5% growth in earnings. Earnings are expected to further increase by 25.1% in 2025.
At nine times forward earnings, Pfizer remains a reasonably priced stock for the expected earnings growth over the next two years.
Is Pfizer Stock a Buy, According to Wall Street?
Pfizer stock has an overall “moderate buy” rating in the analysts' community. Out of the 19 analysts that cover the stock, eight rate it a “strong buy,” one suggests a “moderate buy,” and 10 rate it a “hold.” The average target price of $36.10 implies expected upside of 39.4% from current levels.
The Bottom Line on MO and PFE Stocks
Starting with Altria, the company expects to increase its earnings, but the tobacco industry continues to face challenges. Altria's yield is undeniably intriguing, but the company's growth prospects do not appear promising. To maintain consistent earnings growth and dividend payments, Altria must find new ways to expand its business and increase revenue. As a result, I agree with Wall Street's current neutral rating on Altria stock.
Pfizer, on the other hand, is both a growth and income stock. Analysts expect Pfizer’s earnings to grow at a drastic rate in the coming years, due to its already-robust portfolio and potential candidates in the pipeline.
And being a biotech company, Pfizer's products will always be in demand, regardless of the state of the economy. It also has more financial resources and scope to expand its operations. As such, Pfizer remains a good long-term growth and dividend stock to invest in.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
