A Billionaire Recently Bought Pfizer Stock -- and So Did I

By Keith Speights Markets Fool.com

If you combined hedge fund investor David Tepper's net worth with mine, you'd have around $11 billion. Of course, Tepper is a multibillionaire ranked as one of the wealthiest people in the U.S. Let's just say his contribution to our combined net worth is a bit more than mine.

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Tepper and I think alike about at least one thing, though: Pfizer (NYSE: PFE). His Appaloosa Management hedge fund bought shares of Pfizer in the fourth quarter. I bought the pharmaceutical stock more recently (without any knowledge of the Appaloosa purchase, by the way). Why did Appaloosa buy Pfizer? You'll have to ask Tepper. But I can tell you why I did.

Image source: Getty Images.

Money for nothing

There's just something about a company sending me money for doing absolutely nothing that I really like. Pfizer will send me money every quarter while I don't do a thing to help it grow.

I'm talking about the company's dividend, of course. Pfizer has what I consider to be one of the best dividends around. Its yield currently stands just shy of 4%. That's higher than what most stocks offer.

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But could that high yield be in jeopardy? After all, Pfizer is spending more than it currently earns in profits to fund the dividend. I definitely wanted to make sure that this money for nothing wouldn't dwindle down to nothing before buying the stock.

To find out if the dividend could be at risk, I checked out Pfizer's financial reports. Thankfully, the company's cash flow is quite strong. There really shouldn't be any problems with Pfizer continuing to pay out its dividend at current levels.

I also listened to Pfizer's chief financial officer, Frank D'Amelio, speak at the J. P. MorganHealthcare Conference held in January. He said that the dividend will continue to be "an important part to our investing thesis." It was great to hear that Pfizer remains committed to its dividend.

D'Amelio also pointed out that the company will keep share repurchases as a priority. Stock buybacks are kind of like an invisible dividend that helps make existing shares worth more. During 2016, Pfizer returned$12.3 billion to its shareholders through dividends and share repurchases.

No dire straits ahead

As much as I like a solid dividend and stock buybacks, though, they're not enough for me. I also want a decent chance that the stock will climb in value. Pfizer's odds on that front look pretty good, in my view.

To be sure, Pfizer faces some challenges. Sales for its legacy established products, including Lipitor and Premarin, are falling. So are sales for products that either recently lost patent exclusivity or will do so in the near future.

Several of Pfizer's blockbuster drugs are also losing ground. A key concern is that sales for the company's biggest revenue generator, its Prevnar 13 vaccine, slipped 8% in 2016.

Despite all of this, though, Pfizer shouldn't be in dire straits in the future. It has a wildly successful cancer drug with Ibrance. Sales for autoimmune disease drug Xeljanz are soaring. Smoking cessation aid Chantrix is growing revenue at a solid pace.

Pfizer has also strengthened its lineup through acquisitions. It picked up eczema drug Eucrisa with the buyout of Anacor last year. The company brought prostate cancer drug Xtandi with its acquisition of Medivation. Both of these drugs should be multibillion-dollar products for Pfizer in the years to come.

I also like Pfizer's pipeline. The company expects to havearound five approvals in 2017 and another five or so in 2018. Pfizer should report results from 15 pivotal clinical studies over the next couple of years as well.

Great expectations

Wall Street analysts think Pfizer will grow its earnings by an average of around 6.5% over the next five years. That seems realistic to me with the company's impressive new drugs and promising pipeline. Combined with its dividend, this growth rate should produce a nice total return from owning the stock.

Tepper's hedge fund invested $156 million in Pfizer. My stake is a little smaller than that. (OK, it's a lot smaller than that.) However, I suspect that Tepper is as confident as I am that our investments will pay off over the long run. Pfizer is a great stock for billionaires and for those of us who aren't billionaires yet.

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Keith Speights owns shares of JPMorgan Chase and Pfizer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.