Should You Still Hold Pfizer?

| December 28, 2009 | 0 Comments

A little over a year ago, I started buying shares of Pfizer (PFE).

It was a scary time in the markets.  We’d just entered a major economic downturn.  The credit crisis was in full swing.  And the major market indices were falling fast.

Despite the bearish conditions, I found a company I believed had long term upside potential.

The company was none other than pharmaceutical giant Pfizer.  The stock had dropped a little over 20% in the prior year.  I thought I was getting a good deal at those prices.

Management was giving good financial guidance.  The industry has a great long term outlook.  And, the company had a strong track record of dividend payouts.

For 41 years straight, the company had increased their dividend… and in the decade before that, dividend increases were averaging 18%… it was incredible.  Best of all, the company had paid a dividend for more than 280 consecutive quarters… or a little over 70 years.

I bought a big slug of shares… unfortunately January of 2009 brought bad news.

Pfizer decided to buy Wyeth for $68 billion.  The acquisition would ramp revenue by 50%.  And cost cuts would eliminate some 15% of the work force, saving the combined company millions of dollars.

Unfortunately, they also slashed the dividend by 50%… Gone, in a blink of an eye, was my nice fat dividend yield.

The Wyeth acquisition was a great move by management.  But, I was shell shocked over the dividend cut.  It really hurt.

I took some time to reevaluate my investment.

I had to make a decision… do I stick with the stock or do I dump it and run?

I quickly realized it wasn’t the time to bail out… Pfizer’s a strong company.  And they’re only getting stronger.  In the long run, that would benefit not only the company but the shareholders as well.

I told everyone to hold tight.  But I also cautioned the stock might trend lower because of the acquisition.  It turns out I was half right…

PFE collapsed in the next two months to a new low.  For a few days, the stock was trading hands at less than $11.50 a share.  It was early March 2009 and the stock was falling, but not because of the acquisition… the entire market just stepped off a cliff.

Iron-stomached investors were stepping in to buy shares… I wish I had been one of them.  I cringed at the price… but I held fast to my belief the stock would rally.

Now almost nine months later, the stock has done incredibly well.

The acquisition with Wyeth closed.  We’ll be seeing the benefits of that transaction in the coming quarters.

In addition, Pfizer will also see a big jump in revenue from the falling US Dollar.  A big percentage of their sales are done overseas.  As sales in other currencies are converted back into US Dollars, the favorable exchange rate will benefit the company.

Needless to say, the company’s financials are improving… and now the dividend is in the spotlight again.  This time for good reason.

Right now we’re earning a per share dividend of $0.16 a quarter.  But, I think the company will boost its dividend payout soon… possibly in the next quarter or two.  Hiking the dividend would be a strong vote of confidence by management.  It would signal fundamentals are improving. And, it would likely send the stock price higher.

I’m still a long term holder of Pfizer and only see a higher stock price from here!

 

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Category: Stocks

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The Dynamic Wealth Report works with a number of staff writers and guest experts who specialize in everything from penny stocks to ETFs to options trading. These guest analysts post under the 'staff writer' moniker for ease of use.

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