Shareholders at FTSE 100 pharma group GSK (LSE: GSK) need to prepare for reduced dividend payments, following the recent spin-off of the group’s consumer healthcare business.
In this piece I’ll share the most accurate dividend forecasts I can find, which are based on guidance from GSK itself.
GSK dividend cut
The company recently spun off its consumer healthcare business, Haleon, into a new company. Existing GSK shareholders received Haleon shares, which they’re free to keep or sell.
In the past, GSK (formerly known as GlaxoSmithKline) was a popular high-dividend-yield stock. In July 2021, for example, the shares offered a 5.6% dividend yield.
Although the old dividend often looked stretched to me, it wasn’t cut. However, CEO Emma Walmsley has used the Haleon split as an opportunity to reset GSK’s dividend to a more sustainable level.
I think this is a sensible decision. But the forecast dividend yield on offer from the shares is now much lower than UK investors are used to seeing.
GSK 2022/23 dividend forecast
The firm recently confirmed its new dividend policy and the expected payments for 2022 and 2023. Here’s what the company says shareholders should expect.
From 2022, it will adopt a new progressive dividend policy that will target gradual growth. The dividend is expected to be between 40% and 60% of earnings, averaged across investment cycles.
This description makes it a little hard for us to predict exact payouts. Fortunately, GSK has provided very clear guidance. It said these estimates include the impact of the recent share consolidation, which saw the company issue four new shares to replace every five old one.
2022: It expects to pay a total dividend for the year of 61.25p per new share. That’s equivalent to a dividend yield of 3.5%, based on a share price of 1,750p.
2023: It expects to declare a dividend of 56.25p per share for 2023. That gives the stock a forecast yield for next year of 3.2%.
Remember that it pays quarterly dividends, so these payouts will be split across four payments each year.
A dividend growth opportunity?
Clearly, the dividend yield is now much lower than the 5%+ that’s often been available in recent years. However, I think this FTSE 100 share still has some attractions as a potential income investment.
From a business perspective, I expect GSK to perform better as a smaller, more focused operation. My hope is that this will enable the group to start delivering a more reliable stream of successful new medicines, generating long-term profit growth.
Financially, I think the new dividend looks much more affordable. Over time, I believe this will allow the firm to deliver more consistent dividend growth. The old dividend hadn’t increased for years.
The main risk I can see is that GSK will struggle to find the new blockbuster drugs it needs to deliver a step-change in profits. That’s always a risk with pharmaceutical companies, but I think its large portfolio should provide enough winners to support long-term growth.
On balance, I think the shares could be a good long-term dividend investment at current levels.
