Global biopharma company GSK (LSE: GSK) shares look like a decent buy for passive income from the dividend.
The business has growth ambitions as well. So long-term investors may see both the share price and the dividend rising in the years to come. However, nothing is guaranteed. And when it was known as GlaxoSmithKline, rising dividends and capital appreciation were elusive for shareholders.
A new start
But GSK has changed. In July 2022, the company demerged its consumer healthcare business, which is now called Haleon. And a couple of months before that it ditched the old GlaxoSmithKline name for the shortened GSK.
Perhaps the change in name was designed to signal an intent to reboot growth by shedding the old. If so, growth does indeed appear to be returning to the operations of the business. On 1 February, the directors said they expect 2023 turnover to increase between 6% and 8%. And they anticipate a 10% to 12% rise in adjusted operating profit.
Those figures should drop through the profit and loss account to produce an increase in earnings per share of between 12% and 15%. And if the company scores that kind of growth rate, it would be quite impressive for a big FTSE 100 business.
The company is now “fully focused” on biopharma. So growth is driven by the firm’s research and Development (R&D) operation. And that concentrates on the science of the immune system, human genetics, advanced technologies and vaccines.
Flowing from the R&D effort, GSK aims to develop vaccines and speciality medicines in four therapeutic areas. These are infectious diseases, HIV, oncology and immunology.
Looking ahead, the directors reckon the company can achieve compound annual growth in sales of 5% in the years ahead. And they expect operating profit to compound at 10%. However, estimates are never nailed-on certainties. But the directors reckon the rapid convergence of science and technology in the biopharmaceutical sector provides an opportunity for the business.
A healthy R&D pipeline
In January, the company said the R&D pipeline had 69 vaccines and speciality medicines based on the science of the immune system. And of those, 18 were in phase III or registration, suggesting late-stage development.
With a fair tailwind, it’s possible GSK could go on to do something of an AstraZeneca. Over the past few years, the biopharmaceutical company’s productive R&D pipeline has driven impressive growth. And as turnover and earnings have risen, the valuation has re-rated higher, driving some outstanding shareholder returns.
But we’re not there yet with GSK. And one lingering problem is the big pile of debt on the balance sheet. However, successful commercialisation of R&D outcomes may drive higher cash flow. And that will be useful for paying down debt, if it happens.
Another hangover from the past is an ongoing legal battle concerning an old drug, Zantac. And that situation could be keeping the share price depressed right now.
But with the stock near 1,439p, the forward-looking dividend yield for 2024 is running just above 4%. And that means buying 500 GSK shares would potentially make £303 in annual dividend income.
I reckon that’s attractive. So investors may wish to dig deeper with their own research into this company now.
