PFE vs ABBV: Dividend Comparison for Investors

PFE vs ABBV: Quick Overview

Pfizer (PFE) and AbbVie (ABBV) are two titans of the pharmaceutical industry and popular mainstays in dividend growth portfolios. Both companies operate in the defensive healthcare sector, boast massive market capitalizations, and offer attractive dividends. However, they present very different opportunities and risks for investors today.

Pfizer, with a history stretching back to 1849, is a diversified global pharmaceutical giant navigating a post-COVID-19 revenue cliff. AbbVie, a younger company spun off from Abbott Laboratories in 2013, is managing the patent expiration of its mega-blockbuster drug, Humira. This comparison will dissect both companies across key metrics to help dividend investors understand which might be a better fit for their portfolio.

Company Profiles

Pfizer Inc. (PFE)

• Business Focus: Pfizer is a highly diversified biopharmaceutical company with a broad portfolio of medicines and vaccines. Its key therapeutic areas include internal medicine (Eliquis), vaccines (Prevnar, Comirnaty), oncology (Ibrance, Xtandi), and inflammation & immunology. The company experienced a massive, temporary revenue surge from its COVID-19 vaccine (Comirnaty) and treatment (Paxlovid). Its current strategy involves navigating the subsequent revenue decline while investing heavily in its pipeline, notably through its recent acquisition of Seagen to bolster its cancer drug portfolio.
• Market Position: As one of the world's largest pharmaceutical companies, Pfizer has immense scale, a global distribution network, and a significant R&D budget. Its challenge is to replace the fading COVID-related revenue with new growth drivers.

AbbVie Inc. (ABBV)

• Business Focus: AbbVie's story has long been dominated by Humira, an immunology drug that was once the world's best-selling pharmaceutical. With Humira now facing biosimilar competition in the U.S., AbbVie's focus is on its next generation of immunology drugs, Skyrizi and Rinvoq, which are growing at a phenomenal pace. The company also has strong franchises in neuroscience (Botox) and oncology (Imbruvica, Venclexta), largely thanks to its transformative acquisition of Allergan in 2020.
• Market Position: AbbVie has successfully executed a strategy to build a fortress of new products around the Humira patent cliff. The company is a leader in immunology and medical aesthetics and is working to prove it can deliver strong growth even as Humira's sales decline.

Dividend Comparison

For income-focused investors, the dividend is paramount. Here's how PFE and ABBV stack up.

Current Dividend Yield

• PFE: With an annual dividend of $1.72 per share and a price of $26.58, Pfizer offers a very high current yield of approximately 6.47%. This high yield reflects the market's concerns about its near-term growth prospects and the stock's recent price decline.
• ABBV: AbbVie's annual dividend of $6.65 per share on a price of $232.03 gives it a current yield of about 2.87%. While significantly lower than Pfizer's, this is still well above the S&P 500 average and is attached to a company with a stronger recent growth profile.

Dividend Growth Rate

• PFE: Pfizer has been a reliable dividend grower, but its growth rate has been modest. Over the past five years, its dividend has grown at a compound annual growth rate (CAGR) of around 2-4%. The company's focus is currently on managing its post-COVID transition, and dividend growth has taken a backseat to pipeline investment.
• ABBV: AbbVie is a dividend growth powerhouse. Since its 2013 spin-off, it has increased its dividend by over 280%. Its 5-year dividend CAGR is typically in the 9-11% range, showcasing a strong commitment to returning capital to shareholders at a rapid pace.

Payout Ratio and Safety

The payout ratio measures what percentage of earnings (or free cash flow) is paid out as dividends. A lower ratio suggests a safer, more sustainable dividend.

• PFE: Pfizer's payout ratio based on adjusted earnings is often in the 40-50% range. However, when looking at free cash flow, especially with fluctuating post-COVID results, it can appear higher. The dividend is generally considered safe, but the high yield and slow growth suggest the market sees limited room for significant near-term increases.
• ABBV: AbbVie maintains a very healthy and conservative free cash flow payout ratio, typically between 40-50%. This provides a substantial cushion to protect the dividend from earnings volatility during the Humira transition and leaves ample capital for R&D, debt repayment, and future dividend hikes.

Years of Consecutive Increases

• PFE: Pfizer has increased its dividend for over 13 consecutive years.
• ABBV: As a member of the S&P 500 Dividend Aristocrats, AbbVie boasts over 50 years of consecutive dividend increases, inheriting this impressive track record from its parent company, Abbott Laboratories.

Using a tool like DripEdge can be invaluable for investors to track these dividend growth streaks and simulate how different growth rates between PFE and ABBV could impact their future passive income streams.

Financial Health

Revenue and Earnings Growth

• PFE: Pfizer is in a transitional period. Its revenue and earnings are declining from the record highs of 2021-2022 due to falling demand for its COVID products. The key investor question is how quickly its non-COVID portfolio and new pipeline drugs (especially from the Seagen acquisition) can fill this gap. Analysts expect revenue to stabilize and return to modest growth in the coming years.
• ABBV: AbbVie is also in a transition, but of a different kind. It is managing a planned decline in Humira revenue while aggressively growing its successor drugs, Skyrizi and Rinvoq. The company has guided for a return to strong revenue growth as the contribution from its newer products overtakes the Humira decline.

Debt-to-Equity

Both companies have used debt to fund major acquisitions. AbbVie's $63 billion purchase of Allergan and Pfizer's $43 billion acquisition of Seagen significantly impacted their balance sheets.

• PFE: Pfizer maintains a relatively moderate debt-to-equity ratio for its size, giving it financial flexibility.
• ABBV: AbbVie's debt load is higher due to the Allergan deal, but the company has been aggressively paying it down using its strong free cash flow, a positive sign for credit agencies and investors.

Free Cash Flow (FCF)

FCF is the lifeblood of the dividend.

• PFE: Pfizer is a strong cash flow generator, but its FCF is expected to be volatile as it normalizes from the COVID-era peak. Its ability to consistently generate FCF well above its dividend commitment is a key strength.
• ABBV: AbbVie is an exceptional FCF machine. Even with Humira's decline, the company generates tens of billions in free cash flow annually, comfortably covering its dividend, debt service, and R&D expenses.

Valuation

Valuation metrics help determine if a stock is attractively priced.

• P/E Ratio: Both companies have undefined trailing P/E ratios in the provided data, which can happen due to one-time charges or accounting adjustments. Therefore, Forward P/E is a more useful metric.
• Forward P/E: This ratio is based on estimated future earnings.
  • PFE: Typically trades at a low forward P/E ratio, often around 11-12x. This reflects investor uncertainty about its future growth trajectory.
  • ABBV: Trades at a higher forward P/E, usually in the 14-15x range, as investors are more optimistic about its post-Humira growth plan.
• Price-to-Book (P/B): AbbVie often has a very high P/B ratio due to the significant goodwill on its balance sheet from the Allergan acquisition. PFE's is more conventional for the sector. For this reason, P/E or Price-to-FCF are often more useful comparisons for these two companies.

Which Is Better for Dividend Investors?

There is no single right answer; the choice depends on your investment goals and risk tolerance.

A case for Pfizer (PFE) could be made for:

• High-Yield Seekers: If your primary goal is maximizing current income, PFE's 6%+ yield is hard to ignore.
• Turnaround Investors: If you believe the market has overly punished PFE for its COVID revenue cliff and that its deep pipeline and Seagen acquisition will reignite growth, the current low valuation could represent a significant opportunity.
• Value-Oriented Investors: Those who prefer buying stocks at a low forward P/E multiple may find PFE's valuation compelling.

A case for AbbVie (ABBV) could be made for:

• Dividend Growth Investors: If you prioritize a rapidly growing dividend stream over a high starting yield, ABBV's track record and future prospects are superior.
• Growth at a Reasonable Price (GARP) Investors: For those who believe in AbbVie's strategy to overcome the Humira patent cliff with its new blockbusters, the stock offers a compelling combination of growth and income.
• Investors Seeking Clarity: AbbVie has provided a clear and, so far, successful roadmap for its post-Humira future, which may appeal to investors who prefer more certainty.

Can You Own Both?

Yes, owning both PFE and ABBV can be a sound strategy. While both are in the same industry, they offer different risk-and-reward profiles that can complement each other in a diversified portfolio.

• PFE provides a high-yield anchor, offering substantial income now, with the potential for capital appreciation if its turnaround strategy succeeds.
• ABBV provides a powerful dividend growth engine, with the potential for strong total returns as it executes its growth plan.

Together, they can provide a blend of high current income and strong future income growth, all from within the defensive healthcare sector.

FAQ

Is AbbVie's dividend safe after the Humira patent cliff?

Yes, AbbVie's dividend is widely considered to be very safe. The company's free cash flow payout ratio is low (typically under 50%), meaning it generates more than double the cash needed to cover its dividend payments. Furthermore, the rapid growth of its newer drugs, Skyrizi and Rinvoq, is successfully offsetting the decline in Humira sales, ensuring that cash flows remain robust enough to support and continue growing the dividend.

Why is Pfizer's stock price and valuation so low?

Pfizer's stock has been under pressure for two main reasons. First, the company is experiencing a significant and expected decline in revenue and earnings from its COVID-19 vaccine and Paxlovid treatment as the pandemic has subsided. The market is uncertain how quickly Pfizer can replace this lost income. Second, there are concerns about its near-term pipeline and upcoming patent expirations for key drugs like Eliquis and Ibrance. The low valuation reflects this uncertainty and the market's 'wait-and-see' approach to its turnaround efforts.

Which company has a better drug pipeline for future growth?

Both companies have promising pipelines, but they are focused on different areas. AbbVie's strength lies in the continued expansion of its immunology drugs (Skyrizi and Rinvoq) into new indications and its growing aesthetics (Botox) and neuroscience portfolio. Pfizer, following its $43 billion acquisition of Seagen, has dramatically strengthened its position in oncology (cancer treatments), which is now a central pillar of its future growth strategy. AbbVie's path seems clearer in the near term, while the long-term success of Pfizer's pipeline, particularly in oncology, holds massive potential but may take longer to be fully realized.

Disclaimer: The information provided is for educational and informational purposes only and does not constitute financial, investment, or legal advice. DripEdge is not a registered investment advisor. Past performance does not guarantee future results. Always do your own research or consult a qualified financial professional before making investment decisions.