1 Ultra-High-Yield Healthcare Stock to Buy Hand Over Fist and 1 to Avoid

The healthcare sector isn't the first place income investors turn to find high dividend yields. Of the 11 S&P 500 sectors ranked based on average dividend yield, healthcare comes in eighth.

Plenty of healthcare stocks, though, pay juicy dividends. Some are good picks, but others aren't. Here's one ultra-high-yield healthcare stock to buy hand over fist -- and one to avoid.

Buy Pfizer

Some investors might think Pfizer (NYSE: PFE) is a healthcare stock to avoid rather than buy hand over fist. That view is understandable if you only look at the drugmaker's recent history. Pfizer's share price has plunged over 50% from the peak set in late 2021. Although the stock has risen this year, it's barely in positive territory with a meager gain that lags well behind the S&P 500's strong return.

The primary culprit behind Pfizer's dismal performance is its COVID-19 vaccine Comirnaty. In 2022, Comirnaty generated sales of $37.8 billion. Pfizer expects the vaccine to rake in only $5 billion in 2024.

To make matters worse, Pfizer faces a looming patent cliff. Kidney cancer drug Inlyta and autoimmune disease drug Xeljanz lose patent exclusivity next year. Patents for breast cancer drug Ibrance and prostate cancer drug Xtandi expire in 2027. Blood thinner Eliquis faces biosimilar competition by 2028. Rare disease drug Vyndaqel goes off-patent in 2028, assuming Pfizer wins a patent term extension.

Should all of this make income investors leery about Pfizer's ultra-high forward dividend yield of 5.66%? I don't think so. Instead, I view Pfizer as a smart pick for anyone seeking income. The drugmaker puts maintaining and growing its dividend at the top of its capital allocation priorities.

More importantly, Pfizer's future should be brighter than it looks at first glance. The company returned to year-over-year revenue growth in the second quarter of 2024 for the first time since the fourth quarter of 2022. Management expects to deliver solid growth in the second half of the decade thanks to multiple new products on the market.

Pfizer's pipeline also includes some potentially huge winners. Its experimental obesity drug danuglipron looks promising. The company advanced three new cancer therapies into late-stage testing this year: sigvotatug vedotin, atirmociclib, and mevrometostat.

Many investors seem to think Pfizer will continue languishing with its shares trading at only 10.5 times forward earnings. I believe this is an attractive valuation for a company with a long track record of resilience, improving growth prospects, and a fantastic dividend.

Avoid Walgreens Boots Alliance

I used a stock screener to identify the healthcare stocks with the highest dividend yields. Only one stock ranked higher than Walgreens Boots Alliance (NASDAQ: WBA). The pharmacy retailer and wholesaler's forward dividend yield tops 9%.

Should income investors jump aboard the Walgreens train to get that sky-high dividend? I wouldn't advise doing so.

Walgreens' problems make Pfizer look like a superstar in comparison. The pharmacy stock has plunged nearly 80% below its three-year high. Walgreens has lost more than half of its market cap in 2024 alone.

While Pfizer's financials are improving, Walgreens' financials are headed in the wrong direction. The company's adjusted earnings per share dropped 40.8% year over year in its latest quarter. Walgreens expects even lower earnings in fiscal 2025.

CEO Tim Wentworth said in the company's recent earnings conference call that roughly 2,000 of Walgreens' more than 8,000 stores aren't profitable. That's not good.

Could Walgreens turn things around? Maybe. The company expects to close around 1,200 unprofitable stores over the next three years. Walgreens is also cutting costs in other ways.

However, I doubt income investors will have a warm-and-fuzzy feeling about Walgreens' dividend. When asked about the dividend in the earnings call, Wentworth replied, "[W]e will absolutely continue to monitor and make changes to our capital allocation, including better aligning our dividend with our long-term earnings power if we believe that's the appropriate thing to do." That sounds like a dividend cut could be on the way to me.

Some aggressive investors seeking turnaround plays might find Walgreens worthy of consideration. But for other investors, it's probably best to stay on the sidelines with this stock.

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Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.