I’d consider buying this FTSE 100 dividend stock before it’s revalued for growth

This may be a rare opportunity for me to buy a decent dividend stock with the possibility of a valuation re-rating higher as growth picks up.

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With a forward-looking yield near 4%, FTSE 100 dividend stock GSK (LSE: GSK) looks tempting for shareholder income.

But the biopharmaceutical company has its sights firmly set on rebooting its growth mojo. And there’s mounting evidence the business may be succeeding in that ambition. So my assumption is the (18 March) share price may not stay near 1,654p for much longer.

Earnings growth likely ahead

City analysts are certainly optimistic. They’ve pencilled in earnings advances of just over 12% for 2024 and again for 2025. Meanwhile, the firm’s newsfeed is becoming vibrant with promising announcements following the directors new and intense focus on the research and development (R&D) pipeline.

I last wrote about GSK on 1 February, the day after the release of strong full-year results for 2023. The intriguing possibility I mulled over then was that GSK could stoke up its R&D efforts and achieve future growth success. There’s a clear example of what’s possible in the firm’s Footsie peer AstraZeneca.

Over the past few years, AstraZeneca stock shot higher fuelled by impressive earnings advances as its R&D pipeline spat out commercial-grade new medicines.

Can GSK gain operational momentum like that in the coming years? Maybe. The company made a bold move — like a declaration of intent — when it demerged its healthcare business in 2022 from Haleon. Clearing the decks like that freed resources for the company to invest more in the pursuit of new vaccines and medicines.

The prospect of accelerating earnings dangles like a carrot from a stick ahead of the business. But investors are warming to the optimism too. Since my last article, the share price has risen by almost 8%, and it’s up nearly 12% since the start of the year.

My feeling is operations and the stock price could be starting to establish an uptrend that may endure.

There may be volatility ahead

However, there’s no certainty of a positive outcome from where things are now. There’s always risk when investing in businesses and stocks. It’s possible for R&D progress to fizzle out. If the company doesn’t make its earnings estimates, the shares will likely go lower than they are today, causing shareholders to lose money.

Another possible risk is that operational progress may take longer than anticipated. Just because AstraZeneca did well over the past decade, doesn’t mean GSK will duplicate that rate of progress. There could be many a slip between cup and lip, as my grandad used to say.

It’s possible for new GSK shareholders to endure a volatile ride in the coming years. Nevertheless, I’m encouraged by the estimates for earnings and growth in the dividend. Analysts think the shareholder payment will increase by mid-single-digit percentages this year and next.

With GSK, we could be seeing a rare opportunity to buy a decent income stock with realistic prospects for a valuation re-rating higher as growth picks up in the years ahead. I’m tempted to embrace the risks and buy a few of the shares now.

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.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca Plc, GSK, and Haleon Plc. 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.

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