One Ultra-High-Yield Healthcare Stock to Buy Hand Over Fist and One to Avoid

The healthcare sector isn’t typically the go-to choice for income investors looking for high dividend yields. In fact, when ranked among the 11 sectors of the S&P 500, healthcare comes in eighth place based on average dividend yield. Nonetheless, there are still several healthcare stocks that offer attractive dividends, though not all of them are wise investments. Here, we explore one ultra-high-yield healthcare stock that is worth buying and another that should be avoided.

Buy Pfizer (NYSE: PFE)

While some may view Pfizer as a stock to avoid, primarily due to its recent struggles, those in search of income should consider it a solid investment. The pharmaceutical giant has seen its share price fall by over 50% since hitting a peak in late 2021. Despite a modest rebound this year, Pfizer’s stock performance lags noticeably behind the robust returns of the S&P 500.

The primary driver behind this underwhelming performance is the anticipated drop in sales from its COVID-19 vaccine, Comirnaty. After generating an impressive $37.8 billion in revenue in 2022, Pfizer expects that figure to decline to a mere $5 billion by 2024. Additionally, Pfizer is facing a significant patent cliff as several key medications will soon lose their exclusivity. Key drugs such as Inlyta (for kidney cancer) and Xeljanz (for autoimmune diseases) will lose their patents next year, with others, including Ibrance (breast cancer) and Eliquis (blood thinner), following in subsequent years.

Given these challenges, many income investors might feel hesitant about Pfizer’s appealing forward dividend yield of 5.66%. However, it is crucial to consider that Pfizer prioritizes maintaining and growing its dividend as part of its capital allocation strategy. More importantly, the company’s outlook may not be as bleak as it appears. Pfizer recently saw a return to year-over-year revenue growth for the first time since late 2022, and the management projects solid growth for the latter half of this decade, driven by promising new products and an expanding pipeline.

Among the recent initiatives, Pfizer’s experimental obesity treatment, danuglipron, shows promise. Moreover, the company is advancing several new oncology therapies into late-stage testing, including sigvotatug vedotin, atirmociclib, and mevrometostat. Given this strong pipeline and its attractive valuation at only 10.5 times forward earnings, Pfizer may be a compelling option for those focused on income generation.

Avoid Walgreens Boots Alliance (NASDAQ: WBA)

In contrast with Pfizer’s prospects, Walgreens Boots Alliance presents a much less optimistic picture. Although its forward dividend yield exceeds 9%, the underlying issues within the company pose significant risks for income investors. Walgreens’ stock has experienced a dramatic decline, plummeting nearly 80% from its three-year peak, with the company losing over half its market capitalization in 2024 alone.

While Pfizer’s financial figures improve, Walgreens is navigating troubled waters. The company’s adjusted earnings per share fell by a staggering 40.8% year-over-year in its latest quarter, and even lower earnings are expected in fiscal 2025. CEO Tim Wentworth revealed that around 2,000 of Walgreens’ more than 8,000 stores are not profitable, which raises serious concerns regarding its business model.

Walgreens is attempting to right the ship by closing approximately 1,200 unprofitable stores over the next three years while implementing cost-cutting measures. However, these efforts may not suffice to reassure income investors regarding the sustainability of its dividend. In a recent earnings call, Wentworth acknowledged that the company will “absolutely continue to monitor and make changes to our capital allocation,” which raises the alarm for potential dividend cuts in the future.

While aggressive investors seeking turnaround opportunities may find Walgreens an intriguing option, many prudent investors should consider standing aside for now. The risks associated with the company’s current financial health far outweigh any potential rewards.

Conclusion

In summary, income investors looking for solid dividends may find Pfizer to be an attractive option, thanks to its robust dividend policy and improving growth outlook, despite the challenges it faces related to patent expirations and declining vaccine sales. Conversely, Walgreens Boots Alliance, with its declining earnings and uncertain future, should be approached with caution, as the potential for dividend cuts loom large amidst declining profitability.