Trying to tackle the law-suit machine that is the pharma industry is a daunting task for many investors, myself included.Â However, with our aging population, a prudent investor simply can’t ignore the upside potential that these companies have going forward.
I have previously suggested that one might wish to gain exposure to the sector through a well-rounded ETF such as Pharma HOLDR (PPH) in order to limit the risk associated with our litigious society.
That said, if we were to venture into a single security in the industry it would most likely be Pfizer.Â Pfizer has committed to a cost cutting initiative across the organization that may save the company as much as $4 Billion by 2008.Â This cost cutting will allow earnings per share to rise during 2007 and 2008 as the company brings new drugs to market through its pipeline.
That pipeline includes drugs for cholesterol, athsma, schizophrenia and bi-polar disorder.Â Not to mention a host of other drugs in development.Â The company issued a bold statement last fall saying that:
We are on the verge of a new age of drug discovery, one that promises to turn cancer, diabetes, and other debilitating illnesses into manageable conditions.
Pfizer is a shareholder conscious company that is always looking for ways to reward investors.Â In 2006 the company sold the consumer health-care unit to Johnson and Johnson for $16.5 Billion which added nearly $13.5 Billion to the company cash-flow after taxes.
That kind of cashflow will ensure that Pfizer will be able to continue to raise their dividendÂ each year as they have for the last four decades.
I have also been putting a lot of emphasis on shareholder yield in the past little while.Â This emphasis includes focusing not only on the dividend yield, but on stock buybacks as well.Â Pfizer has said that it will spend about $10 Billion to buy back shares in 2007.
With a rather nice 4.20% dividend yield, rising dividends, and a huge share buyback plan Pfizer is a great option for those of you who want single stock exposure to the pharmaceutical industry.