The GSK share price: 3 things that could give it a boost

The GlaxoSmithKline share price has had a rocky week, with the company announcing ambitious new plans. What will it take to get it growing again?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

British pound coins in birds' nest

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

While other pharmaceutical stocks have made gains on the back of coronavirus research, GlaxoSmithKline (LSE: GSK) has failed to do the same. AstraZeneca, for example, is up 30% over the past two years, but the GSK share price has fallen 10% in the same period. I can see three things that I think could help reverse those fortunes.

Firstly no, I don’t think getting in on the Covid vaccine scene now is the way to go. That ship has sailed, and it’s crewed by too many of Glaxo’s rivals.

There’s another thing that I don’t think will work, and that’s time. Yes, it was always going to take a while for Glaxo to get back its pipeline back in shape. But it’s gone on way longer than many had expected, and patience is running out. And it shows in the Glaxo share price.

Earnings have had a few years of modest growth, though 2020 did see a small fall back. But for investors to believe sustainable growth is finally back, I think we need a return to growing dividends. The dividend has remained stubbornly stuck at 80p per share for years. And though last year’s yield did look good at 6%, that was only down to the declining GlaxoSmithKline share price.

Dividend cut first

The problem with the dividend is that it’s going to be cut first. It’s all part of the ongoing demerger plan, which is the second of my events and should cause a seismic shift for the company. Glaxo is set to offload its consumer products business, leaving a ‘New GSK’ to focus on its core pharmaceuticals development. 

That new core will target a dividend of 45p in 2023. So that’s a rebasing, but it’s based on the new slimmed-down business. The cut itself could knock the GSK share price a bit. But Glaxo expects the new business to generate more than £10bn in cash by 2026. And if that comes off, we could see a return to progressive dividend growth.

The thing that really seems to be giving Glaxo the push it needs is growing shareholder activism. Activist fund Elliott Management has built up a sizeable stake in the company, and brings with that its reputation for giving underperforming businesses a kickstart. Had Elliott Management not been trying to shake things up, I doubt we’d be seeing the urgency with which the board is now approaching the restructuring.

GSK share price drivers

I guess I’ve listed these things in reverse chronological order. The sequence I envisage is that activism pushes the restructuring, which in turn should pave the way for progressive dividends (albeit at a lower level). And I hope it will all help to boost the GSK share price. That sequence of events does seem to be well under way, so do I want to buy?

I would like to own some of GlaxoSmithKline’s core pharmaceuticals business. But I probably don’t want any of that consumer products stuff. And I wouldn’t be surprised to see a year or two of further share price volatility before my hoped-for effects kick in. So yes, I do think I’ll buy GlaxoSmithKline shares some day. But not yet.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

British bank notes and coins
Investing Articles

Should I buy M&G shares for the 9.8% dividend yield?

With the M&G dividend yield close to double digits, this existing shareholder explains why he'd happily buy more of the…

Read more »

British Isles on nautical map
Investing Articles

This cheap UK stock could rise 30%, the City says

Analysts covering Serco Group shares reckon they could rise by over a quarter. But is this UK stock a good…

Read more »

2024 year number handwritten on a sandy beach at sunrise
Investing Articles

Here’s how I’d aim for a million by investing £45 a day

Christopher Ruane thinks putting £45 a day into blue-chip shares could help him aim for a million. Here are some…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

I’d buy FTSE 100 shares in December before the next stock market rally!

Christopher Ruane explains why he would happily snap up cheap FTSE 100 shares between now and the end of the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

6% yield and 8% annual revenue growth! A passive income opportunity

Why not have the best of both worlds? Our writer explores a passive income opportunity with a 6% yield, bolstered…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’ve been loading up on this FTSE 250 share in November!

Christopher Ruane explains why he's been adding even more shares in this well-known FTSE 250 name to his portfolio this…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

Down 30%, these cheap shares are on sale!

Cheap shares don’t mean anything to our analyst unless there’s real value in what he’s buying. Let’s see his Foolish…

Read more »

Photo of a man going through financial problems
Investing Articles

I can’t believe how far these FTSE 100 shares have fallen!

While the FTSE 100 is up 0.7% over six months, these five Footsie flops have collapsed 26% to 40%. But…

Read more »