3 Excellent Reasons To Plough Your Cash Into GlaxoSmithKline plc

Royston Wild describes why GlaxoSmithKline plc (LON: GSK) is a great pick for strong returns.

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Today I am highlighting three great reasons to buy into pharmaceutical giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US).

Pipeline pumping out revenue grabbers

Although the pharmaceutical sector has been hammered by the effect of patent expirations in recent times, GlaxoSmithKline’s pre-emptive decision to invest heavily in R&D is clearly paying off handsomely. The firm’s 2013 results released last week showed revenues rise 1% to £26.5bn and pre-tax profits advance 0.7% to £6.6bn.

The firm rolled out a multitude of new products across its identified growth areas of Respiratory, Vaccines, HIV and Oncology last year. It also received approval for six new drugs in 2013, and completed regulatory filing procedures for another five. These are figures that GlaxoSmithKline’s main rivals can only dream of.

With the company planning to introduce up to 30 new Consumer Healthcare brand innovations in 2014, and Phase III testing on 10 new drugs scheduled to commence over the next two years, I expect turnover to ignite in the coming years.

Growth markets illustrate plump earnings prospects

Allegations of widescale corruption in China continue to weigh on group performance, however. Pharmaceutical and vaccine sales in the country fell 29% during the fourth quarter, even though this signalled a vast improvement on the 61% collapse in July-September.

Question marks remain over how much longer the probe into GlaxoSmithKline’s conduct is set to last, while the hard line adopted by the Chinese authorities has caused many to worry about severe consequences for the firm. Still, I am convinced that GlaxoSmithKline’s position as a critical drugs supplier in the country will result in little more than a slap on the wrist.

Instead, I believe that investors should be concentrating on the huge success that the company is making in potentially lucrative emerging markets. Even taking into account the persistent problems in China, turnover in the EMAP (Emerging Markets Asia Pacific) region advanced 5% to £1.3bn in September-December. And I believe sales will be set to stride in this territory once the current misconduct case in China is resolved.

A deft dividend selection

GlaxoSmithKline is a long-standing favourite with dividend seekers owing to its hugely-generous dividend policy. This was underlined in last week’s results when the firm elected to raise the full-year dividend 5.4% to 78p per share.

And City analysts expect the payouts to keep on rolling, with a 4.4% lift forecast for 2014 to 81.4p and a further 6.4% rise anticipated for next year, to 86.6p. These figures spawn giant dividend yields of 5.2% and 5.5% for these years, comfortably surpassing the 3.2% FTSE 100 forward average and smashing a corresponding reading of 2.4% for the complete pharmaceuticals and biotechnology space.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in GlaxoSmithKline. The Motley Fool has recommended GlaxoSmithKline.

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