High-yielding dividend stocks often attract the attention of investors—and for good reason. When established companies maintain larger than average dividend payments, they can provide substantial current income and the potential for long-term appreciation.
However, unusually high yields can be a double-edged sword. Sometimes, they reflect temporary market pessimism, creating genuine value opportunities. Other times, they signal legitimate concerns about a company’s ability to maintain its dividend payments in the face of deteriorating business conditions.
Image source: Getty Images.
In today’s market, two high-profile dividend payers highlight this dynamic. Pfizer (PFE 0.11%) and Altria Group (MO -0.20%) both offer returns well above their respective industry averages, with each stock trading at remarkably low forward earnings multiples. Their situation raises classic questions for dividend investors: does market pessimism create opportunities, or are the risks too great?
I’ll examine how these two dividend weights compare to determine which stock offers the best opportunity for income-focused investors today.
A pharmaceutical giant in transition
Pfizer, one of the world’s largest pharmaceutical companies, is known for developing revolutionary medicines and vaccines and currently yields 6.53%. This is well above its 4.2% average of large-cap pharmaceutical peers, while the stock trades at just 9x forward earnings. The company’s payout ratio, defined as the percentage of earnings paid out as dividends, stands at 221%, so it is currently paying out more in dividends than it is earning.
However, it is far from cutting its dividend. On December 12, Pfizer’s board of directors approved an increase in the quarterly cash dividend to $0.43 per share, marking its 345th consecutive quarterly payment. According to CEO Albert Bourla, this increase reflects “strong financial performance, disciplined execution and our commitment to return value to shareholders.”
Several key pipeline developments in 2025 could be critical to the drugmaker’s long-term financial performance and ability to sustain its fairly generous dividend program. In particular, Pfizer is expected to release once-daily dosing data for its obesity candidate danuglipron in early 2025, while several oncology programs are set to report results next year.
Pfizer’s ability to maintain and grow its dividend appears stronger than the payout ratio alone suggests. While the company’s transition beyond COVID-19 revenue creates near-term pressure, management’s confidence in increasing the dividend, combined with potential pipeline catalysts and strategic moves like the Seagen acquisition, they paint a more encouraging picture for income investors.
A tobacco leader in front of the evolution of the industry
Othersthe largest US tobacco company and maker of the iconic Marlboro brand, yields an impressive 7.58%, beating its tobacco average of 6.7%. This high yield is supported by a more manageable 67.3% payout ratio, while the stock trades at just 10.1 times forward earnings.
The US cigarette market has faced persistent headwinds, with volumes declining by 6% annually from 2018 to 2023, significantly worse than the global market’s annual decline of 1%. However, Altria’s Marlboro brand commands more than 40% market share, providing crucial pricing power. What’s more, Morningstar Analyst Kristoffer Inton expects U.S. volume to decline moderately at around 5% annually, as vaping moderates competition.
While cigarettes will remain dominant at nearly 90% of Altria’s projected revenue through 2028, Altria has renewed its push into alternative products. The company’s purchase of NJOY for $2.75 billion marks its return to vaping, complementing its offerings of smokeless tobacco and nicotine pouches. Importantly, cigarettes remain relatively affordable in the US market, suggesting there is room for continued price increases to offset volume declines.
Is it better to buy?
For income investors weighing these opportunities, Altria emerges as the best pick despite Pfizer’s recent dividend increase. While both companies have shown commitment to their dividends, Altria’s fundamentals paint a more encouraging picture from a dividend sustainability standpoint.
Its 67.3% payout ratio also offers a significantly greater cushion than Pfizer’s 221%, and its pricing power has consistently offset volume declines. As a result, Altria scans as the best high-yield play in this match-up.