Following a tough 2014, shares in GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) have disappointed since the turn of the year. In fact, they are flat year-to-date while the wider index is up 4%. Clearly, this may lead many investors to feel that now is not the right time to buy shares in the company, since investor sentiment appears to be somewhat weak. However, for income-seeking investors, GlaxoSmithKline is one of the best stocks on offer. Here’s why.
High Yield
While the FTSE 100’s yield of around 3.5% is much better than the sub-2% gross interest rates on the best bank savings accounts, GlaxoSmithKline’s yield is simply stunning. At the present time, it stands at a whopping 5.8% yield, which is among the highest on the FTSE 350 and shows that its weak share price in recent months could be used to your advantage.
Growth Potential
As with a number of global pharmaceutical companies, GlaxoSmithKline has struggled to offset the loss of key, blockbuster drugs in recent years. And, with generic competition being so strong and cost-effective, it has meant that GlaxoSmithKline’s bottom line has fallen by 16% since 2011. Clearly, that is hugely disappointing but, looking ahead, the company is expected to post a gain in earnings of 10% next year, which is above the FTSE 100’s mid to high-single digit growth rate. As such, investor sentiment could gain a boost and help to push GlaxoSmithKline’s share price higher.
Excellent Track Record
While GlaxoSmithKline’s track record of earnings growth may be somewhat disappointing, growth in shareholder payouts has been anything but. For example, in 2010 GlaxoSmithKline paid out 65p per share in dividends. This year that figure is forecast to reach 80p. That’s a gain of 23% in just five years and equates to an annualised growth rate of 4.2%, which is well ahead of inflation. And, while GlaxoSmithKline is set to hold dividends steady for the next three years, its long-term track record means that GlaxoSmithKline could prove to be a great stock to own even if higher levels of inflation return in the long run.
Defensive Stock
Although GlaxoSmithKline’s earnings performance has been poor in recent years, it remains a very appealing defensive play. That’s because its financial performance and returns are less highly correlated with the economy and wider index than for the majority of stocks on the FTSE 100. As such, GlaxoSmithKline’s shares are often seen as a relatively safe place to invest when the outlook for the wider index is somewhat uncertain.
For income-seeking investors, this is a key consideration as high volatility could mean that dividends are less sustainable. However, with GlaxoSmithKline having an excellent pipeline of new drugs, cost savings to come through and a reputation as a defensive play, it should provide sufficient stability to make it a consistent performer over the medium to long term. As a result, now seems to be the perfect time to add a slice of the company to your portfolio.
