The pharmaceutical industry is built around a very unique business model. Pharmaceutical firms spend hundreds of millions or even a billion dollars on research and development for a single drug with the hopes that, if approved, the 20-year patent will provide secure, high margin cash streams for years. The nature of this model gives large drug companies, such as Pfizer (NYSE: PFE) a large competitive advantage. Pfizer is able to leverage its huge infrastructure - financial resources, human resources, product diversity, distribution network, etc. - to weather the long-cycle development process. This infrastructure allows Pfizer to generate attractive cash flow streams that investors can count on.
I view Pfizer as a stable, long-term investment that will generate strong dividend income along with some price appreciation. Pfizer is interesting as I classify it somewhere in between a dividend growth stock and a dividend income stock, given its relatively high dividend yield of 3.75%. My belief is that Pfizer is currently well positioned to continue growing its dividend for years.
