For the first time in eight years, a new Pfizer (NYSE: PFE) CEO took the stage at the J.P. Morgan Healthcare Conference. Albert Bourla took the reins from Ian Read only a few days ago. He and Mikael Dolsten, head of research and development for Pfizer, sat down to field questions at the conference on Monday.
There was plenty of discussion about Pfizer's pipeline and drug pricing. But three things that Pfizer's new CEO said at the J.P. Morgan conference should especially make shareholders happy.
Image source: Getty Images.
1. We'll keep growing the dividend
Pfizer boosted its dividend in December by 6%. The dividend now yields nearly 3.4%. When Ian Read was CEO, Pfizer repeatedly affirmed that its top capital allocation priority was the dividend. So what does Bourla think about dividends?
He was asked the same question that Read had to answer many times in the past about capital allocation. And Bourla's response was the same as his predecessor's. He stated that Pfizer's top priority has been growing the dividend and that the company will "maintain this policy."
That should be music to the ears of Pfizer shareholders, many of whom were attracted to the stock in the first place because of its strong dividend. Investors who bought Pfizer shares 10 years ago and held on now have an effective dividend yield of over 8% because of dividend increases -- more than double the yield they started out with. Bourla's commitment to continue growing the dividend should mean those effective yields are only going to become more attractive.
2. We'll keep on buying back shares
Another top capital allocation priority for Pfizer during Read's tenure as CEO was share repurchases. In the first three quarters of 2018, Pfizer bought back $7.2 billion of its stock. And one of the final actions Pfizer's board of directors took while Read remained chairman was to authorize a new $10 billion buyback program.
Bourla has the same view about share buybacks as Read did, saying at the J.P. Morgan conference that Pfizer will continue its practice of repurchasing shares. He referred to buybacks as "investing in ourselves." With Pfizer's shares trading at only 14 times expected earnings, that should be a pretty good investment for the company.
It's also a good investment for shareholders. Every share Pfizer buys back makes existing shares worth more, with all other factors remaining constant. Stock buybacks are kind of an "invisible dividend" that rewards shareholders -- and they don't even have to pay taxes on them.
3. We'll do deals -- but not distracting ones
Pfizer has been very active on the business development front in years past. It has made big deals including the buyouts of Hospira and Medivation. Pfizer also attempted to gobble up Allergan in 2016 before throwing in the towel after the U.S. Treasury Department wiped out the tax benefits from the deal. But over the past two years, the company hasn't made any major acquisitions.
What's the company's new CEO's stance on deals? Bourla said Pfizer will continue to invest in opportunities. However, he added that he doesn't want a distraction. Instead, Bourla indicated that Pfizer will focus on bringing phase 2 and phase 3 assets into its pipeline that target therapeutic areas on which the company currently focuses.
This approach is good news for investors. Focusing on its areas of expertise should improve the odds that Pfizer picks the right candidate drugs to acquire. And buying select targeted assets rather than making a massive acquisition means Pfizer's balance sheet should remain healthy, which helps the company keep growing its dividends and buying back more shares.
It's too early to say whether Bourla will be a great CEO for Pfizer. But his commitment to stay the course Read set when it comes to capital allocation is encouraging.
Bourla inherits a company that arguably has its strongest pipeline in years. Pfizer has 15 programs with blockbuster potential. It also faces challenges, notably including the continued negative impacts from drugs that have or will lose exclusivity. However, the overall story for Pfizer and its prospects appears to be pretty good right now.
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