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In a recent analysis, we explored the status of Pfizer Inc. (NYSE:PFE) in relation to a curated list of 13 Best Cheap Dividend Stocks To Buy Right Now. This article will examine Pfizer’s position among these investment opportunities.

Value investing, a strategy championed by renowned investor Warren Buffett, emphasizes the purchase of stocks that appear undervalued relative to their fundamental worth. While growth investing has garnered significant attention in recent years, the historical performance of value stocks has proven resilient and rewarding.

Notable investment managers like Josef Lakonishok and David Dreman advocate for a long-term investment perspective, suggesting that a methodical approach often yields better results than chasing rapid growth. Their comprehensive studies indicate that value investments typically outperform growth strategies about 70% of the time, irrespective of the company’s market capitalization. Over extended periods, their findings reveal that value stocks tend to deliver average annual returns exceeding 7%, surpassing growth stock performance.

READ ALSO: 10 Companies that Just Raised their Dividends

In 2024, market gains within the Russell Index have been driven primarily by a select group of large-cap stocks, particularly the technology giants known as the “Magnificent Seven.” This cohort constitutes over 25% of the index and was responsible for nearly 40% of the index’s impressive 21% return during the first three quarters. However, recent trends indicate a shift toward value stocks, with the Russell Value Index climbing 9.4% in the third quarter, vastly outperforming the 3.2% increase of the Russell Growth Index, as reported by BlackRock.

Several factors underpin this shift. Improved employment figures, dwindling inflation rates, and the Federal Reserve’s recent move towards interest rate reductions have spurred greater investor confidence, contributing to a wider market uplift beyond just the dominant tech stocks. Sectors such as financial services, utilities, and real estate investment trusts (REITs), which are more reactive to interest rate changes, have particularly benefitted in this newly favorable economic climate.

Market analysts caution against aligning too closely with a single investment approach. JP Morgan points out that major tech companies are deeply integrated into both individual portfolios and broader indices, making the market highly susceptible to fluctuations driven by sector-specific events, such as the recent advancements in AI from competitors. However, they suggest that investors should not take aggressive positions against these tech leaders due to their significant market influence.

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Comparisons to the dot-com bubble of 2000 were drawn by JP Morgan, noting that top companies during that period traded at exceptionally high forward price-to-earnings ratios (between 50x and 75x), whereas current mega-cap stocks are valued much more conservatively. They recommend diversifying investments beyond growth stocks, particularly into financial equities, while advocating for a balanced approach between value and growth investments.

Dividends are often synonymous with value investing, as they usually signify financial health and offer higher yields compared to their growth counterparts. A recent study by S&P Dow Jones Indices underscores that income-focused investment strategies often exhibit characteristics typical of value stocks. Companies with strong dividend yields and reasonable valuations frequently attract investor interest.

However, the Dividend Aristocrats Index does not strictly follow a value-only framework. The index includes a blend of both growth and value stocks. An extensive review from 1999 to 2022 showed that approximately 59.04% of its holdings were classified as value stocks, with the remaining 40.94% recognized as growth stocks.

For the creation of this latest list, a Finviz screener was utilized to identify dividend companies featuring forward P/E ratios below 15 as of March 6, indicating they are trading under their intrinsic value. Out of this data set, 13 firms with the most significant hedge fund interest at the end of Q4 2023 were selected, ranked by the number of hedge funds that invested in them.

But why are hedge fund investments significant? Research shows that mirroring top hedge fund picks can lead to market outperformance. A quarterly newsletter has successfully guided investors in selecting 14 small-and large-cap stocks and has achieved a remarkable 373.4% total return since May 2014, outperforming its benchmark by 218 percentage points (see more details here).

Is Pfizer Inc. (PFE) The Best Cheap Dividend Stock To Buy Right Now?

Number of Hedge Fund Holders: 92

Forward P/E Ratio: 8.76

Pfizer Inc. (NYSE:PFE) is a global leader in pharmaceuticals, dedicated to manufacturing and distributing medical products. Recently, the company has heightened its focus on oncology, evidenced by its significant $43 billion acquisition of Seagen, aimed at enhancing its cancer treatment offerings. Pfizer anticipates substantial growth in oncology, aiming to double its patient base by 2030 and launch at least three new blockbuster medications, each expected to generate over $1 billion annually. With oncology revenues projected to increase by 25% in 2024, Pfizer’s initiatives in this sector are already showing promising results.

Additionally, Pfizer experienced a 12% increase in operational revenue from its non-COVID product lines, reflecting successful strategic measures. The company attained its net cost savings goal of $4 billion through realignment efforts and has since raised this target to around $4.5 billion by 2025. As part of its Manufacturing Optimization Program, Pfizer has set a goal of achieving $1.5 billion in net cost savings by 2027, with early benefits expected in late 2025. The company expresses optimism about regaining its pre-pandemic profit margins in the forthcoming years.

Currently, Pfizer distributes a quarterly dividend of $0.43 per share, marking a 2.4% increase in December 2024 and extending its annual dividend growth streak to 15 consecutive years. The resulting dividend yield stands at 6.5% as of March 6.

In summary, Pfizer ranks 3rd among our best cheap dividend stocks to consider presently. While recognizing PFE’s potential as a worthwhile investment, we also opine that certain AI stocks may offer greater prospects for higher returns within a shorter time frame. For those interested in exploring a promising AI alternative priced under five times its earnings, we invite you to read more about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires

Disclosure: None. This article was originally published at Insider Monkey.

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