Why GlaxoSmithKline plc Really Yields 7%

GlaxoSmithKline plc’s (LON:GSK) current yield stands at 7%.

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GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) is a FTSE 100 dividend champion. Indeed, the company is a portfolio essential of acclaimed dividend investor, Neil Woodford and at present Glaxo’s shares support a dividend yield of just under 5%.

However, if we factor in both share repurchases and dividends, Glaxo’s effective yield jumps up to 7% and there is plenty more to come.

Throwing out cashgsk

Glaxo is throwing cash at investors. The company returned a total of £4.7bn to shareholders during 2013. This distribution was split, £1bn by way of stock repurchases and £3.7bn through dividend payouts. All in all, this worked out at around 96p per share. 

That said, 2013 was a year of low returns for Glaxo’s shareholders. The year before the company returned a total of £5.8bn to investors, and during 2011 before that the company returned £5.4bn. 

What’s more, on a per share basis, these returns are even more impressive. For example, at the beginning of 2011 and 2012, Glaxo had around 5.1bn shares in issue. So, the company returned £1.14 per share to investors during 2012 and £1.06 per share during 2011. 

If you’d brought Glaxo’s shares at the beginning of each year, these cash returns were equal to a dividend yield of 8.1% for 2011, 7.9% for 2012 and 7% during 2013.

And it would appear that these returns are set to continue. Glaxo’s management continues to increase that dividend by 6% per annum and after the recent deal with Novartis, investors are set for a one-off payout.  

More to come

Glaxo’s recent deal with Novartis is a game changer for both the company and shareholders. The deal saw Glaxo dispose of its oncology portfolio for $16bn, while acquiring Novartis’ global Vaccines business for $5.3bn.

Additionally, Glaxo and Novartis will create a new Consumer Healthcare business with 2013 pro forma revenues of £6.5 billion. Glaxo will have majority control of this world leading Consumer Healthcare business with an equity interest of 63.5%. 

According to management, the deal will be accretive to earnings almost immediately and Glaxo is set to receive net proceeds of £4bn from the deal.

The company has stated that it will return this cash to investors via a B share scheme. With around 5bn shares in issue, this cash return will be worth approximately 80p per share, a one-off yield of 5.1%.

Foolish Summary

So overall, after including share buybacks, Glaxo’s shares currently yield excess of 7%. The company is also planning to make a one-off payment to shareholders later this year, which will be equivalent to a one time dividend yield of 5.1%. 

With this in mind, Glaxo’s defensive nature, robust cash flows and impressive dividend yield makes the company the perfect long term buy and forget share.

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.

Rupert owns shares in GlaxoSmithKline. The Motley Fool has recommended shares in GlaxoSmithKline. 

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