If you have an opening in your portfolio for a great stock with solid growth potential and perhaps even a respectable dividend yield, you would do well to give Pfizer (PFE 1.04%) some serious consideration.

As with any stock, there are very good reasons to consider buying into Pfizer and also some reasons to take a more cautious stance. Here's a look at some reasons why you might buy -- or not buy -- shares of Pfizer.

Image source: Getty Images.

Pfizer: An introduction

With a recent market value near $133 billion, Pfizer is a pharmaceutical powerhouse -- tracing its roots way back to 1849 -- before the Civil War! Like many big drug companies, it not only has multiple treatments on the market for various health conditions and diseases, but it also has a big pipeline of products in development.

At the time of this writing, Pfizer had 108 candidates in its pipeline. Forty-seven were in the early phase 1 stage, 28 in phase 2, and 30 in late-stage development, phase 3. Among the phase 3 candidates, more than half were focused on oncology, addressing various kinds of cancers, such as breast, multiple myeloma, prostate, bladder, lung, and colon, among others. Several were for vaccines: Lyme disease, Clostridioides difficile ("C. Diff"), and COVID-19.

Pfizer's current major medications include its COVID-19 vaccine, its COVID-19 treatment Paxlovid, its Prevnar pneumococcal vaccine, its Ibrance breast cancer therapy, and its Xtandi treatment for advanced prostate cancer.

Why you might invest in Pfizer

Here are some pluses for Pfizer:

• Its dividend: The stock recently yielded a whopping 7.3%. That's hard to beat and will generate around $730 for every $10,000 you have invested in Pfizer. CFO David Denton called the company’s commitment to its dividend "steadfast." As he has said in the past, Pfizer intends to maintain and grow the dividend over time.
• Its growth prospects, particularly in oncology: As many big pharma companies do, Pfizer bought a smaller drug developer in 2023, Seagen (costing it $43 billion), acquiring its various drugs in development.
• Its low valuation: The stock's recent forward-looking price-to-earnings (P/E) ratio of 8, for example, is well below the five-year average of 10. Its price-to-sales ratio, meanwhile, was recently 2.1, lower than its five-year average of 3.1.

Why you might not want to invest in Pfizer

Of course, Pfizer isn't 100% promising.

• It's paying out most -- or more than all -- of its earnings in dividends. Its payout ratio -- the portion of earnings it's paying out in dividends -- was recently 122%. That can be OK for a while, but it's not very sustainable. Of course, even if Pfizer slashes its payout in half, a 3.65% dividend yield will still be way above the S&P 500's recent yield of 1.3%.
• The stock has been struggling, with average annual losses of 18.6% over the past three years. Revenue soared from $41.9 billion in 2020 to $81.3 billion in 2021 once its COVID-19 vaccine was available -- and to $100.3 billion in 2022. Today, COVID-19 is less top-of-mind and less in the news, and Pfizer's revenue fell to $63.6 billion in 2024. (This is why all those treatments in the pipeline are so important. New blockbusters are always needed.) That's a big drop in revenue from 2022 to 2024, but remember that it's also a big increase, too, from 2020 levels to 2024 levels.
• Several of Pfizer's big sellers are losing their patent protections. These include the cancer drug Inlyta, the autoimmune disease drug Xeljanz, and the blood thinner Eliquis.
• Amid all the excitement over weight-loss drugs in recent years, Pfizer had its own candidate for weight loss, but it raised concerns about possible liver damage, so it's gone.
• The ongoing tariff wars could hurt business for Pfizer, as it would ideally want to be able to make and sell drugs in many different countries. It may end up penalized for its tax-saving strategies.
• The current administration in Washington appears to be generating headwinds, aiming to lower drug costs and also taking away much support for vaccines.

What should you do?

Given all that, it's reasonable to be at least a bit confused. Should you jump in? Should you hold off? If you already own shares of Pfizer, should you sell or hold? Different investors will have different opinions, and much depends on your investing goals, risk tolerance, and time horizon. But here's what I think.

Pfizer appears to be a very promising stock to buy if you're looking for income. That 7.3% dividend yield is terrific, and even if it gets slashed, it will likely still be substantial. Also, healthy and growing dividend-paying stocks tend to increase their payouts over time, so a 7.3% yield you buy today could turn into an effective 10% or 15% yield in 10 years or so.

With Pfizer's valuation so low, there's a big margin of safety built into this stock. It's not like many growth stocks that have been bid up so high that any setback could send them plunging. I actually own some shares of Pfizer, and I'm planning to hang on, in large part for the dividend income, which may well be augmented by growth from the company's new drugs as they roll out.