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Pfizer (NYSE: PFE) and AbbVie (NYSE: ABBV) rank among the biggest drugmakers in the world. Both pharma stocks have also been favorites for many income investors through the years.
However, Pfizer and AbbVie offer distinctly different attractions for income investors these days. Pfizer's 5.9% dividend yield is one of the highest in the healthcare sector. AbbVie's 2.5% yield isn't as eye-catching, but the company has increased its dividend for an impressive 53 consecutive years. Which of these stocks is the better pick right now?
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It's obvious what Pfizer's main argument is: the mouthwatering yield. An investor who bought $10,000 of Pfizer stock would receive nearly $600 per year, compared to only around $250 from investing the same amount in AbbVie.
But is Pfizer's dividend safe? The company's payout ratio of roughly 246% could alarm some investors. However, that ratio is based on Pfizer's GAAP earnings, which include some one-time items such as acquisition-related costs that muddy the waters.
A better metric for assessing Pfizer's dividend safety is its free cash flow payout ratio. That number currently stands at 89%. Granted, Pfizer doesn't have much wiggle room at this level, but it's much more reassuring than the GAAP earnings-based payout ratio.
Importantly, Pfizer's management is adamant that no dividend cuts are forthcoming despite the company facing a patent cliff over the next couple of years. CFO Cecile Guegan said in the company's third-quarter earnings call, "So through the LOE [loss of exclusivity] period, our operating cash flow, financial assets, and access to capital markets will give us the ability to continue to invest and maintain the dividend."
The patent cliff will negatively impact Pfizer's revenue and earnings growth, though. Still, the company thinks that its newer products and late-stage pipeline candidates will help it return to growth later this decade.
What's the strongest argument for AbbVie? We've already mentioned it: the company's streak of dividend hikes. AbbVie is a member of the Dividend Kings, an elite group of stocks that have increased their dividends for at least 50 consecutive years.
Importantly, AbbVie hasn't doled out measly dividend increases in the past. Since its spin-off from Abbott Labs (NYSE: ABT) in 2013, the company has increased its dividend by 355% cumulatively. Over the last five years, AbbVie has grown its dividend by nearly 23%.
While Pfizer faces a steep patent cliff, AbbVie has already successfully navigated through a tough one of its own. For years, the company relied heavily on its blockbuster autoimmune disease drug Humira. But when Humira lost U.S. patent exclusivity in 2023, AbbVie barely skipped a beat.
Skyrizi and Rinvoq played a huge role in AbbVie's resilience. The two autoimmune disease drugs combined raked in $23 billion in the first nine months of 2026. That's more than Humira generated annually at its peak.
AbbVie is a major player in areas beyond immunology, too. The company's neuroscience products, particularly migraine therapies Qulipta and Ubrelvy, enjoy strong sales momentum. AbbVie's cancer therapies Elahere and Epkinly are also rising stars.
So which of these stocks is the better buy now? I think the answer depends on your investing priorities.
Pfizer is the clear choice for income investors who want to maximize cash flow. The big drugmaker's dividend yield is hard to beat. Don't count on dividend increases over the next few years, but Pfizer should be able to maintain the payout at current levels.
If you want both income and growth, though, AbbVie gets the nod. The company doesn't face the headwinds that Pfizer does. It has a strong product lineup and pipeline. And it's a safe bet that AbbVie's dividend will continue to grow for years to come.
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Keith Speights has positions in AbbVie and Pfizer. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and Pfizer. The Motley Fool has a disclosure policy.
Pfizer's 5.9% Yield vs. AbbVie's 53-Year Dividend Streak: Which Stock Is the Better Buy? was originally published by The Motley Fool
