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It looks like Pfizer Inc. (NYSE:PFE) is about to go ex-dividend in the next two days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Pfizer's shares on or after the 9th of May will not receive the dividend, which will be paid on the 13th of June.
The company's next dividend payment will be US$0.43 per share, and in the last 12 months, the company paid a total of US$1.72 per share. Looking at the last 12 months of distributions, Pfizer has a trailing yield of approximately 7.2% on its current stock price of US$23.87. If you buy this business for its dividend, you should have an idea of whether Pfizer's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
We've discovered 3 warning signs about Pfizer. View them for free.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Pfizer distributed an unsustainably high 122% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious. A useful secondary check can be to evaluate whether Pfizer generated enough free cash flow to afford its dividend. The company paid out 97% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
Cash is slightly more important than profit from a dividend perspective, but given Pfizer's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Check out our latest analysis for Pfizer
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Pfizer's earnings per share have dropped 6.3% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.