Why Should Buy PFE but Be Cautious WBA？
Many healthcare stocks offer attractive dividends, but some high-yield options are worth considering, while others come with higher risks.
1. $Pfizer(PFE)$
Some investors might think Pfizer is a stock to avoid, especially after its recent performance. The stock has dropped over 50% from its late 2021 peak, and though it has seen a slight recovery this year, it lags far behind $.SPX(.SPX)$ .
The main reason for Pfizer's struggles? Its COVID-19 vaccine, Comirnaty. It generated $37.8 billion in sales in 2022 but is expected to drop to just $5 billion by 2024. Plus, Pfizer faces a looming patent cliff, with multiple drug patents expiring soon.
Despite these challenges, Pfizer's forward dividend yield is a solid 5.66%. Should investors worry about its ability to maintain dividends? Not at all. Pfizer prioritizes dividend maintenance and growth, making it a smart choice for income investors.
What’s more, while Pfizer seems shaky, its future looks promising. The company reported its first year-over-year revenue growth since Q4 2022 in Q2 2024. Management expects new product launches to drive steady growth until 2030. Its robust R&D pipeline includes high-potential projects like the new weight loss drug danuglipron and three new cancer therapies in late-stage trials.
Lastly, Pfizer’s dynamic P/E ratio is only 10.5, indicating it’s undervalued.
2. $Walgreens Boots Alliance(WBA)$
On the other hand, Walgreens, a drug retailer and wholesaler, has a forward dividend yield exceeding 9%. But investors should be wary of the high dividend risk. The stock has plummeted nearly 80% from its three-year high, losing over half its market value in 2024 alone.
Unlike Pfizer, Walgreens’ financials are deteriorating. The latest quarterly adjusted EPS dropped by 40.8%, and earnings are projected to decline further in FY 2025. CEO Tim Wentworth noted that out of 8,000 stores, about 2,000 are unprofitable, which is concerning.
Can Walgreens turn things around? It’s possible. The company plans to close around 1,200 unprofitable stores over the next three years and implement other cost-cutting measures. However, I’m skeptical, especially regarding dividends. When asked about dividends, Wentworth stated, “We will continue to monitor and adjust capital allocation, including aligning dividends with long-term profitability when necessary.” This sounds like a potential dividend cut is on the horizon.
Some aggressive investors might see a turnaround opportunity with Walgreens, but it carries significant risks and isn’t suitable for conservative investors.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
