1 Bruised Dividend Stock to Buy While It’s Cheap, and 1 to Avoid

Sometimes quality companies that have fallen on hard times can make for great investments. The market usually sells off their stocks to levels more than warranted when the underlying business hits a lean patch, or fails to meet the market’s baked-in expectations, over the short term. But if the long-term prospects are fundamentally intact, such market actions merely make the stocks cheap, making them ripe pickings for value investors.

However, it’s also true that many investors have lost their shirts by betting on fallen winners from yesteryear in hopes of a recovery that never arrived.

Undoubtedly, it’s hard to distinguish which stocks are in which of the two categories above. So, let’s examine one example of each.

One to buy: Pfizer

Despite its high-profile work in developing a coronavirus vaccine at the start of the pandemic, the total return of Pfizer‘s (NYSE: PFE) shares over the last three years is down by 11%, badly underperforming the market. And it isn’t as though the company can tell shareholders that it’ll surpass its top line of $100 billion in 2022 anytime in the next few years.​​ The windfall profits have all been realized already, and demand for its anti-coronaviral products will decline until it reaches its long-term level.

But that doesn’t mean its dividend will stop rising over time, albeit at a slow pace.

Nor does it mean that the company’s ability to pay its dividend will be threatened, and management actually plans to increase its capital allocated to shareholders as soon as it’s done paying down the debt from its recent acquisition of Seagen, a cancer therapeutics business. With $64 billion in debt and repayment at the pace of the fourth quarter, when it repaid $1.3 billion of its long-term borrowing, that project will take some time.

But with the benefit of Seagen and a few other acquisitions, the future looks bright. In total, by 2030 Pfizer is aiming to gain $45 billion in new revenue. Few other businesses can say that their next six years…