GlaxoSmithKline (LSE: GSK) has a market capitalization of over £ 90 billion, making it one of the 10 largest companies listed on the London Stock Exchange. Since its founding in 2000, since the merger of Glaxo Wellcome and SmithKline Beecham, the company has returned real value to its shareholders.
GSK has been paying dividends regularly for years. In fact, its annual payment has grown steadily at a compound annual growth rate of around 3.4% over the past 10 years. Last year, the pharmaceutical giant made 4.4% dividends. I believe these characteristics make it ideal for income investors.
In comparison, a good, easily accessible cash ISA can give you returns of 2%. I don’t know about you, but I know where I’d like to invest my money.
A solid commercial base
GSK’s business base is solid. Consider the fact that the company has managed to diversify its sources of revenue over the years. In addition to pharmaceutical products, GSK also deals with vaccines and consumer products.
Furthermore, what is interesting is the enormous commitment that the company has shown towards research and development (R&D). In fact, he is currently reinvesting much of his cash flow into that. GSK spends nearly £ 4 billion on research and development every year to remain relevant in the sector and develop a competitive advantage.
Consequently, if there is a pharmaceutical company that will keep its place in the coming years, I believe it is GSK.
Investments in GSK are long term
GSK has found itself in rough waters in recent years. Over the past five years, earnings per share (EPS) has declined rapidly. The company has invested heavily in research and development to update its drug pipeline.
Last year the share price delivered nearly 30% in return. His investments in research and development are medium and long term, so I believe that only patient investors will make money.
Because I’m a buyer
GSK is a solid income stock. The pharmaceutical company currently has a surprising dividend yield of 4.4%. For years his annual payment has been around 61% and up to 89%. So aside from its waning concern in EPS, GSK easily makes my checklist.
But what about falling EPS? The first cause is growing competition. For example, in 2019 GSK had its own Advair – a bronchodilator used to prevent symptoms of asthma and chronic obstructive pulmonary disease – challenged by the approval of a generic competitor in the United States
Next up is his heavy investment in building his product portfolio. In December 2018, for example, he initiated the acquisition of Tesaro, a pharmaceutical company focused on oncology, for $ 5.1 billion.
Other than that, the past few years have been really good for GSK. Therefore, the company’s declining EPS shouldn’t worry at all. And 4.4% is much better than 2%, don’t you think?
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Pi De Jonge has no position in any of the mentioned actions, but will open long positions in the future. Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The views expressed about the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations that we make in our subscription services such as Share Advisor, Hidden Winners and Pro. We at The Motley Fool believe that considering a wide range of insights there makes better investors.