Tuesday, December 21, 2004
Last week Pfizer raised their dividend 12% just days before the surfacing of the news of the issues surrounding Celebrex. I'm convinced PFE probably knew bad news might be coming on the trial, and the dividend decision may have been a tough one. I like it when dividend decisions are tough. Oftentimes, we learn a lot about what a company thinks of their near and intermediate-term prospects based on their dividend actions in tough times. Pfizer could have ducked the dividend issue and made a token increase, lots of drug companies are doing so. In my judgment, the 12% increase, in the face of bad news, is a signal that they believe they will make it through this rough spot in reasonably good shape. This is certainly not the consensus view on Wall Street. They are painting PFE with a Merck brush, but Merck's Vioxx was a much bigger deal to them than Celebrex is to PFE. With the news that Naproxyn is also a possible contributor to heart attacks and stokes, I believe it will be very difficult to pull Celebrex, which has not shown the heart problems in two other tests. The board had to weigh all the issues when making their call on the dividend hike. I think they made a positive call, and if they are right, PFE is incredibly cheap.