Better High-Yield Dividend Stock: Pfizer vs. Merck

Investors seeking high-yield dividend stocks may find themselves torn between Pfizer (PFE) and Merck (MRK), two pharmaceutical giants with impressive track records and attractive payouts. To help you make an informed decision, let's weigh the strong points and challenges of each company.

Pfizer: The High-Yield Champion

Pfizer offers a juicy dividend yield of 6.7%, which is more than four times the market average. The company has increased its dividend for 16 consecutive years, demonstrating a strong commitment to rewarding shareholders with higher payouts. Pfizer's dividend payout ratio of 35.4% indicates that the company has room to increase its dividend without straining its earnings. The company's growth prospects are robust, with a projected revenue growth rate of at least 6% through 2025, excluding its COVID-19 programs. Pfizer's broad range of growth drivers, including Eliquis, a blood thinner, and Padcev, a new cancer treatment, further enhances its appeal.

However, Pfizer's high dividend yield may raise concerns about a potential dividend cut. The company's reliance on its COVID-19 vaccine and treatment for growth could lead to a decline in demand, which might impact its earnings and dividend sustainability. Additionally, Pfizer's valuation is relatively high, with a forward earnings multiple of 7.4, which may limit its upside potential.

Merck: The Steady Performer

Merck offers a dividend yield of 3.7%, which is still attractive but lower than Pfizer's. The company has increased its dividend for 11 consecutive years, showing a consistent commitment to dividend growth. Merck's dividend payout ratio of 48.9% is higher than Pfizer's, indicating that the company may have less room to increase its dividend without affecting its earnings. Merck's growth prospects are more uncertain, with a key drug, Lagevrio, facing an uncertain future and two major drugs, Keytruda and Gardasil, losing U.S. exclusivity in 2028.

Despite these challenges, Merck's lower valuation, with a forward earnings multiple of 12.6, makes it an attractive option for investors seeking a more conservative dividend stock. Merck's strong pipeline of drugs, including Keytruda and Gardasil, should continue to generate significant revenue, supporting its dividend payout.

The Better Dividend Stock: Pfizer or Merck?

When comparing Pfizer and Merck, investors should consider their dividend yields, dividend growth histories, payout ratios, future growth prospects, and valuations. Pfizer's higher dividend yield, lower payout ratio, and robust growth prospects make it an attractive option for investors seeking a high-yield dividend stock with strong growth potential. However, Merck's lower valuation and more conservative dividend payout ratio may appeal to investors looking for a more stable and less risky dividend stock.

Ultimately, the better dividend stock depends on your investment goals, risk tolerance, and time horizon. Both Pfizer and Merck offer attractive dividend yields and have demonstrated a commitment to dividend growth. By carefully evaluating their strong points and challenges, you can make an informed decision about which high-yield dividend stock is best for your portfolio.