I’m frequently on the lookout for FTSE 100 stocks offering attractive dividend yields for my portfolio. Passive income stocks form a core part of my investing strategy, providing me with a regular and predictable source of income without my having to expend any time or effort.
With inflation hitting 6.2% in February – the highest in three decades – I have become even more attracted to dividend-paying stocks. Housebuilders such as Crest Nicholson and Vistry Group are among the inflation-busting shares I’ve added to my portfolio, both of which offer dividend yields above 5%.
However, today I want to look at GlaxoSmithKline (LSE:GSK). It’s a blue-chip company offering a 4.85% dividend yield, but one that I’m looking to sell in the coming days. Here’s why!
Dividend coverage concern
Glaxo has a reputation for being one of the most reliable and rewarding income stocks on the FTSE 100. Currently, it offers an attractive 4.86% dividend yield, which is far above the FTSE 100 average. This is certainly appealing and will go some way in negating the impact of inflation on my portfolio, but there are some concerning signs about GSK’s dividend payments.
The pharmaceutical giant’s dividend coverage ratio – a measure of the number of times a company can pay its stated dividend from profits – could be a lot healthier. Over the last five years, the Brentford-headquartered firm has only once registered a dividend coverage ratio above 1.5.
A ratio above two would be considered healthier. Meanwhile a ratio below 1.5 is slightly concerning and suggests the firm may struggle to maintain the current level of dividend unless profits increase.
Dividend payment unchanged for years
Moreover, Glaxo has not raised its dividend since 2014; it has remained at 80p a year throughout the five-year tenure of chief executive Emma Walmsley. The company has said it was better off investing the money elsewhere to fund future growth.
Instead of an increase in dividend payments, shareholders will see their returns slashed. Amid a restructuring of the pharmaceutical giant, due to take place this year, the new GSK dividend will be cut to just 45p in 2023. However, investors will still get a dividend from Haleon – a spinoff consumer health company – but it is unlikely to make up the 35p shortfall from the current dividend.
Share price underachieving
GSK’s share price hasn’t been the most reliable source of growth on the FTSE 100 over the last decade. Despite a resurgence in March, today’s share price sits around 2% down from where it was five years ago. And at the current £16.45 a share, it’s not far from its 10-year peak, which was just above £17.50 in late 2019.
I hold GSK in my Stocks and Shares ISA, but because of the reasons above, I’ll be selling my holding soon. I think there are better options for passive income for my portfolio, especially in the housebuilding sector.
