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GlaxoSmithKline plc’s Dividend Prospects For 2014 And Beyond

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of pharmaceuticals giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US).

Dividends past

The table below shows GSK’s five-year dividend record.

  2008 2009 2010 2011 2012
Dividend per share 57p 61p 65p 70p 74p
Dividend growth 7.5% 7.0% 6.6% 7.7% 5.7%

As you can see, GSK has increased its dividend at a fairly steady rate over the last five years. The average annual increase comes out at 6.9% — well ahead of inflation.

This has been a difficult period for GSK. Earnings have been under pressure from cutbacks in government healthcare budgets, expiring patents on some of GSK’s major products, company restructuring costs and some hefty legal settlements.

Despite these negatives, the total of 327p a share paid in dividends over the last five years has been covered 1.3 times by warts-and-all statutory earnings per share (EPS) of 427p. For the latest year (2012), statutory EPS cover of the 74p dividend was in line with the overall 1.3, while cover was 1.5 based on GSK’s ‘core’ (underlying) EPS of 112.7p.

A solid dividend performance through testing times.

Dividends present

GSK has so far paid three quarterly dividends totaling 55p for the current year. Most analysts are expecting a final dividend of 23p when the company announces its annual results on 5 February — giving a 2013 full-year payout of 78p (up 5.4% on 2012). Core EPS is expected to be modestly ahead of last year, maintaining dividend cover at around the 1.5 level.

At a share price of 1,620p, GSK’s current-year dividend represents a yield of 4.8%.

Dividends yet to come

Analysts are forecasting GSK’s dividend to rise by 5.1% to 82p for 2014, which suggests the following schedule:

  Q1 Q2 Q3 Q4
Provisional announcement date 30 April 23 July 22 October February 2015
Forecast amount 19p 19p 20p 24p

Again, analysts expect core EPS to be modestly ahead of the previous year, maintaining dividend cover at around the 1.5 level.

Looking further ahead, GSK is over the hump of its patent expiries, has a strong pipeline of new products coming to market, and management has identified £1bn of new annual cost savings by 2016.

Shareholders can be optimistic about continued annual dividend increases ahead of inflation.

If you're thinking of investing in GSK, or already own shares, you may wish to read this free Motley Fool report.

You see, GSK is one of an elite group of just five FTSE 100 companies our leading income analysts have identified as quality businesses, set to deliver superior long-term earnings and dividend growth.

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> G A Chester does not own any shares mentioned in this article. The Motley Fool has recommended shares in GlaxoSmithKline.