My 2 Favorite Dividend Stocks to Buy in August

The article pitches Pfizer (PFE) and Nintendo (NTDOY) as “forgotten” dividend stocks, with Pfizer yielding ~6% while generating nearly $11B in free cash flow over the last 12 months and benefiting from a Seagen-driven 21% revenue growth in cancer drugs. Nintendo is presented as a dividend grower with a payout ratio tied to at least 40% of operating earnings or 60% of net profit, alongside Switch 2 sales of ~24M units in the last 12 months and net income growth surpassing $3B. Overall, the news is broadly constructive on income durability and future dividend growth, though it is not based on a new earnings release or macro catalyst.

Analysis

PFE is better thought of as a balance-sheet repair story with a dividend attached, not a clean income compounder. The yield can anchor the stock in the near term, but the equity rerating only happens if management converts free cash flow into visible deleveraging and offsets patent erosion with new launches; absent that, the market will keep treating the payout as a call option on execution. That makes the next 2-4 quarters the key window: if operating income stabilizes while leverage trends down, the stock can work as a defensive carry trade; if not, the yield becomes a value trap and multiple compression persists.

NTDOY has the opposite setup: the dividend is a lagging expression of earnings power, so the real driver is software attach and franchise monetization over the next 12-24 months. The market usually underprices how much margin leverage a successful hardware installed base creates, but it also overestimates the durability of the cycle; once sell-through normalizes, growth can decelerate quickly unless first-party releases stay dense. The key second-order effect is that stronger cash returns can support a premium valuation versus other consumer-tech names, but only if the user base keeps converting into high-margin recurring software sales.

Contrarianly, the consensus may be too comfortable treating both names as simple dividend proxies. For PFE, the high payout can mask slower strategic optionality relative to better-capitalized healthcare peers; for NTDOY, the payout policy can rise mechanically even if the underlying franchise merely plateaus, which does not necessarily justify a large re-rate. In both cases, the market will care less about the headline yield than about whether capital returns are being funded by genuine earnings inflection versus financial engineering.

Key Decisions for Investors

• Stay neutral on PFE for now; only get constructive on a 2-4 quarter horizon if net debt trends materially lower and core ex-COVID revenue stabilizes. Falsifier: another quarter of declining operating leverage or dividend coverage slipping below free cash flow.
• Use NTDOY as a quality hold, not a chase; best entry is on post-earnings weakness if software attach rates remain intact. Risk/reward improves if the installed base keeps growing while the payout ratio rises organically.
• Pair trade idea: long NTDOY / short a weak dividend pharma basket or PFE on rallies, betting that NTDOY’s earnings-driven payout growth deserves a premium while PFE remains capped by leverage and patent erosion. Time horizon: 6-18 months.
• For more risk-averse income exposure, prefer a small starter position in PFE only if the stock trades at a materially higher yield versus defensives and management reiterates debt paydown priorities. If guidance implies dividend growth without deleveraging, fade the rally.