For our December issue of TSI Dividend Advisor we reported on Pfizer’s research spending and recent acquisitions. They will contribute significantly to its future growth.

PFIZER INC. $31 (New York symbol PFE; Income Portfolio, Manufacturing & Industry sector; Shares o/s: 6.1 billion; Market cap: $189.1 billion; Price-to-sales ratio: 3.6; Dividend Sustainability Rating: Highest; Dividend yield: 3.9%; www.pfizer.com) is one of the world’s leading prescription drugmakers. Its top-selling brands include Lyrica (epilepsy), Celebrex (arthritis pain), Prevnar (pneumonia) and Enbrel (rheumatoid arthritis).

The company is also a leading maker of over-the-counter treatments, including Advil (pain relief), Centrum (vitamins) and Robitussin (cough syrup).

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Pfizer has a long history of developing successful new drugs. That has let it raise the payout each year since 2010. The current annual dividend rate of $1.20 a share yields 3.9%.

The company’s revenue fell 27.5%, from $67.4 billion in 2011 to $48.9 billion in 2015.

That’s mainly because it sold its nutrition division, which makes formula and other products for children. Switzerland- based Nestle S.A. paid $11.9 billion for it in 2012. In 2013, Pfizer set up its animal health business as a separate firm called Zoetis Inc. (New York symbol ZTS).

If you exclude unusual items, Pfizer’s earnings rose 30.4%, from $8.9 billion in 2011 to $11.3 billion in 2013. Earnings per share jumped 48.6%, from $1.11 to $1.65, on fewer shares outstanding.

Following its asset sales, Pfizer’s earnings fell to $1.41 a share (or a total of $9.1 billion) in 2014, and to $1.11 a share (or $6.9 billion) in 2015.

In the three months ended December 31, 2016, Pfizer’s revenue fell 3.0%, to $13.6 billion from $14.0 billion a year earlier. That matched the consensus forecast.

The revenue decline is mainly due to lower sales of the company’s Prevnar pneumonia vaccine. That offset higher sales of Ibrance (a cancer treatment) and Lipitor (cholesterol).

Pfizer’s earnings before unusual items fell 12.5%, to $2.9 billion from $3.3 billion. Earnings per share declined 11.3%, to $0.47 from $0.53 a year earlier, on fewer shares outstanding. That missed the consensus estimate of $0.50.

Higher research spending was partly to blame for the lower earnings. The company spent $2.5 billion (or 18.4% of revenue) on research in the latest quarter. That’s up 7.0% from the $2.3 billion (then 16.7% of revenue) it spent a year earlier.

The company will also increase its quarterly dividend by 6.7%, starting with the March 2017 payment. Investors will now receive $0.32 a share, up from $0.30. The new annual rate of $1.28 yields 4.0%.

Many of the company’s drugs will lose their patent protection in the next few years. In response, Pfizer is buying smaller drugmakers with promising products.

For example, in September 2015, the company paid $17 billion for Hospira.

That firm makes close copies of biologic drugs, or treatments, that have lost their patent protection. Biologics are different from regular drugs, which are typically made from chemical compounds; instead, they use living organisms, such as bacteria and yeast.

In addition, Pfizer recently acquired Medivation for $14 billion. That firm makes Xtandi, a treatment for prostate cancer. The drug has annual sales of $2.2 billion. Medivation has several other promising anti-cancer drugs undergoing clinical trials.

Pfizer continues to spend a high 14% of its revenue on research. Thanks to this investment, it has several promising new drugs under development.

However, the company recently stopped developing Bococizumab, an anti-cholesterol treatment. That’s because clinical trials have shown that the drug is less effective than other products already on the market.

Low p/e adds to its appeal

Pfizer expects to earn between $2.50 and $2.60 a share in 2017. The stock trades at a low 12.6 times the midpoint of that range.

Pfizer is a buy.