Back in the day, dividend stock GSK (LSE: GSK) felt like a no-brainer-buy for income and growth, but it’s completely lost its way. CEO Emma Walmsley froze the dividend for years and diverted the money into R&D, but we’re still waiting for the drugs pipeline to start flowing smoothly.
The stock’s fallen 10% in the last year and now trades at roughly the same level as a decade ago. Adding insult to injury, its major FTSE 100 rival AstraZeneca has cruised ahead.
Fallen FTSE 100 income star
I bought GSK 18 months ago, thinking I was picking up a bargain with recovery potential. But since adding the stock to my Self-Invested Personal Pension (SIPP), it’s been hit by two blows.
First, the class-action suit over Zantac. GSK was forced to stumped up $2.2bn to resolve around 80,000 cases in the US, plus another $70m to settle a related whistle-blower claim. That lifted the legal cloud, but did little for sentiment. It reminded investors that this kind of threat’s always hovering over pharmaceuticals.
The second blow was even bigger, with Donald Trump threatening drug-pricing crackdowns and tariffs on the sector. This remains a live issue.
That threat overshadowed GSK’s latest results on 30 July, which were pretty good. Q2 revenues rose 5% to £8.1bn, driven by strong performances in vaccines and speciality medicines. Operating profits jumped 12% to £2.1bn. Turnover growth, core operating profit growth and core earnings per share growth were all near the top of its guidance range. The shares have climbed 5.65% in the last month.
Pipeline pressure
There’s still a long way to go. New drug approvals and pipeline progress could reignite investor interest, but failures in late-stage trials would knock the stock back. As GSK battles to produce new treatments, blockbuster ones will steadily lose their exclusivity.
From 2028, GSK’s HIV vaccine will begin to lose protection in the US. It generated £3.6bn in H1, roughly a quarter of the group’s £15.5bn turnover. Walmsley will need some big wins to replace that.
I’m pretty downbeat, but what do the brokers say? Forecasts suggest a median one-year price target of 1,612p, which would represent a modest 9.2% rise from here. A forecast yield of 4.3% would bring a total return of around 13.5%, turning a hypothetical £10,000 investment into about £11,350. I won’t be putting out the bunting, but at least it’s moving in the right direction. Of course, these are only forecasts.
Of 23 analysts, 14 rate it a Hold, with the rest evenly split between Buy and Sell. It’s hardly a ringing vote of confidence.
Long-term view
I want to keep my SIPP diversified, and I think a bit of pharma exposure’s sensible. There are hopes that advances such as artificial intelligence (AI)-driven drug discovery could cut R&D waste and improve success rates. If that happens, it could be a game changer, producing cheaper, quicker, safer results. We’re not there yet though.
I’ll continue to hold my GSK shares. But I’m not sure the stock’s worth considering buying today as US tariff and pricing fears drag on. I think there are more potentially rewarding dividend and growth stocks on the FTSE 100 today.
