By Ian Salisbury

Stock market investors have been punishing Pfizer's stock. Given the stock's generous 7% yield, maybe junk bond investors should take a look.

The venerable drug company, which also developed one of the first Covid-19 vaccines, has seen its share price languish lately. The stock, which peaked at nearly $60 in 2022, has since seen its market value halved -- thanks to coming patent expirations and worries the Trump administration's tariffs could hurt sector profits.

On Tuesday, Pfizer reported better-than-expected earnings, but missed Wall Street revenue forecasts. Shares rose about 4% to $24 during the session.

The big decline in Pfizer's share price may have a silver lining. The stock now yields 7.4%, according to Morningstar. That's high enough to compete with junk bonds: The iShares iBoxx $ High Yield Corporate Bond ETF, a popular exchange-traded fund, yields 7.5%.

Anyone who has followed Pfizer's share price in recent years knows it can be volatile. But junk bonds have their own risks, and it's not clear investors are being sufficiently rewarded for taking them on. Junk bond spreads -- the yield premiums investors receive for owning these risky assets instead of investment-grade bonds -- have climbed sharply since the Trump administration launched its tariff war in early April. However, they remain below where they have been for much of the past three years -- meaning investors aren't getting paid as much for the risk as they have in the past.

And junk bonds could see significant price declines if the economy weakens further and investors begin to seriously worry about defaults. During the last recession, which took place over the first three months of 2020, junk bond ETFs saw negative total returns that surpassed 20%.

Meanwhile, Pfizer investors stand to enjoy big upside from a stock market rebound -- as long as the dividend payout remains safe. That looks likely. While Pfizer's Tuesday earnings report was mixed, the company reaffirmed its 2025 guidance -- though it said the projections didn't include impacts of any tariffs, a wild card.

Still Pfizer has history on its side. The company has raised the dividend in each of the past 10 years and hasn't missed a quarterly payment in more than 80 years. The current annual payout rate, which stands at $1.72 a share, amounts to just under 60% of Wall Street's forecast for Pfizer's 2025 earnings of $2.94 a share. While that compares to about 38% for other healthcare stocks in the S&P 500, on Tuesday's conference call Pfizer executives reiterated that they remain committed to making and raising payouts.

While Pfizer could face revenue shortfalls as some key drugs go off patent in the next few years, the company's Covid-19 windfall has set it up well to deal with uncertainty, CFRA analyst Sel Hardy wrote in a note Tuesday.

Pfizer "benefits from a diverse portfolio of drugs, while its growth has been augmented by recent acquisitions, in our view. Growth has been financed by profits generated from its massive Covid-19 vaccine and medication sales." wrote Hardy, who rates the stock a buy.

Write to Ian Salisbury at ian.salisbury@barrons.com

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April 29, 2025 14:11 ET (18:11 GMT)

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