Tax Reform Stocking Stuffer: Pfizer Dividend Hike & Much Larger Stock Buyback

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It is no secret that investors love stock buyback and dividend announcements. Within reason, companies raising dividends and increasing buybacks are particularly loved. Pfizer Inc. (NYSE: PFE) wants its part of the dividend hike and stock buyback increase game. The pharmaceutical giant has just raised its payout by about 6% and more than doubled what it already had on its buyback plans. With a total return of about 14% so far in 2017, Pfizer has greatly outperformed rival Merck’s drop this year but has greatly lagged the Dow Jones Industrial Average’s 24% return.

Pfizer has increased its existing dividend to $0.34 per share from a prior quarterly rate of $0.32. With a $37.20 closing price on Friday, the old yield was already 3.44%. The new dividend yield will be 3.65%.

Pfizer previously was ranked as having the sixth highest dividend yield of the 30 Dow Jones Industrial Average stocks, and now its yield will jump to the fifth highest spot, between Chevron (5) and Exxon Mobil (4). The dividend will be payable March 1, 2018, to shareholders of record at the close of business on February 2, 2018.

Pfizer’s board of directors also authorized a new $10 billion share repurchase program. While this program is not defined and said to be “utilized over time,” there is a key issue to consider here. The new buyback plan is on top of the $6.4 billion that was shown to be remaining under the company’s current buyback authorization plan. As far as what the remaining $16.4 billion means on a grander scale, Pfizer’s market cap is roughly $217 billion.

What matters here is that Pfizer is looking at tax reform as an opportunity to return cash to shareholders. 24/7 Wall St. has just tracked $100 billion in fresh buyback announcements from just 20 companies in recent weeks. A handful of those 20 companies were over half of the amount. Investors should get ready for even more dividend hikes and stock buybacks from major companies in the coming months. On top of earnings growth boosting available cash for buybacks and dividends, the lower taxes and ability to more easily repatriate cash housed overseas will boost capital available to reward shareholders.

Ian Read, Pfizer’s board chair and chief executive officer, said:

The dividend increase and new repurchase program demonstrate our commitment to returning capital to shareholders and are supported by our continued confidence in the business.

Pfizer shares have reacted marginally positive to the news. Its shares went up 13 cents to $37.33 on Monday, in a 52-week trading range of $30.90 to $37.35. Thomson Reuters has a consensus analyst price target of $38.24.