There has been much speculation as to whether Pfizer will cut its dividend. As the speculation has gained momentum it has almost crossed over from speculation to sell newsprint to a fact. When I see this type of investor behaviour I sense an opportunity and try to look at the facts.

• PFE is an S&P dividend aristocrat, which means they have increased cash payments for 25 years. My records show PFE has increased their dividend every year since 1980.
• Management have maintained the dividend is safe, even in face of losing Lipitor exclusivity. In the Q1 conference call the CFO, Frank D’Amelio, outlined why PFE continue to view the dividend as safe.

As investor’s we need to ask is it likely that PFE will cut their dividend. Is it likely they’ll easily give up their dividend aristocrat record? Is it likely they’ll cut the dividend after repeatedly saying it is safe?

I generally view articles on overseas cash and the like as mutton dressed up as lamb. Financial writers love to find a few facts to lend credibility to their stories and if this plays in to investor’s fears that is fantastic for reputation and circulation. Analysts love to discuss such details as its great for their egos to appear so knowledgeable. International taxation is complicated, repatriating money and the implications depends on the tax rates in the countries involved. Yes, oddly, America does have one of the higher corporate tax rates in the world, so there is likely to be a taxation implication. However, management have repeated said they have many tools available in their taxation planning kit to mitigate this.

It is unlikely PFE will lower their dividend in the next three years, beyond that we’ll have to wait and see. I think PFE have plenty of time to find new growth drivers, to cut costs and emerge as a leaner more profitably company.

Dean

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