Today I am looking at why I believe GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is the right tonic for investors seeking bumper returns from their invested cash.
Bubbly pipeline yielding exciting growth opps
Like many giants across the pharma space, GlaxoSmithKline has suffered heavily for several years now from the patent expiration for many of its key drugs. But the company has been vigilant in developing its pipeline to offset this and drive future earnings growth.
Indeed, the firm has received US approval for its Breo Ellipta, Tafinlar and Mekinist drugs in recent months, and is expected to receive Phase III testing data for around a dozen or so more potential earnings drivers during 2013.
And GlaxoSmithKline’s latest budding earnings generator received US Food and Drug Administration (FDA) approval just last month. Tivicay — developed by its ViiV Healthcare joint venture — is an integrase inhibitor used to block the spread of the HIV virus, and is used alongside other antiretroviral agents for the treatment of HIV-1. A Reuters study showed sales of the drug could reach $900m by 2017.
An active M&A player
To complement the heavy investment it has ploughed into R&D, GlaxoSmithKline remains a shrewd operator on the acquisition front and last month affirmed its commitment to conclude value-accretive bolt-on purchases through its substantial cash pile.
Recent purchases include Swiss vaccine development specialist Okairos in May for £214m, a move that will give the company access to cutting-edge technology to boost its vaccine offerings. And GlaxoSmithKline is not afraid to embark on mammoth game-changing deals, its $3bn purchase of Human Genome Sciences last August giving it total control of the Benlysta lupus treatment.
A dependable dividend deliverer
This pharmaceutical play is a smart selection for those seeking chubby, and increasingly-generous, dividend income. GlaxoSmithKline has steadily increased the full-year payout in recent years, even during times of severe earnings pressure, and total payouts have risen 30% over the past five years, hitting 74p per share in 2012.
And City analysts expect last year’s dividend to increase to 77.4p and 82p per share in 2013 and 2014 respectively, via healthy rises of 5% and 6%. And these prospective payments currently carry yields of 4.6% and 4.9% respectively.
These yields compare extremely favourable with an average forward payment of 2.4% for the pharmaceuticals and biotechnology sector, and 3.2% for the FTSE 100.
The right tonic for stunning shareholder returns
I reckon that GlaxoSmithKline is the right prescription for savvy investors seeking strong earnings potential. And if you are looking for a whole host of other FTSE 100 winners to bolster your investment returns, I strongly recommend you check out these recommendations from veteran fund manager Neil Woodford.
Woodford — in charge of UK Equities at Invesco Perpetual — has more than 30 years’ experience in the industry, and has marked out two other fantastic pharmaceutical giants ready to generate monumental gains.
> Royston does not own shares in GlaxoSmithKline. The Motley Fool has recommended GlaxoSmithKline.