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A FTSE 100 dividend stock I’d buy with my last £1k

It’s a fact: there are few better places for risk-wary investors to plough their cash into than the healthcare sector.

For the sake of stating the obvious, medicines demand is something that remains strong regardless of broader volatility in regional (or even the global) economies. In fact, the twin growth drivers of a rising global population and increasing wealth levels in emerging markets mean that demand for pharmaceutical products is going from strength to strength.

A recent report from The Business Research Company showed just that, forecasting that the worldwide pharmaceuticals market will be growing at an annualised rate of 5.8% through the next few years to total a colossal $1.17trn by 2021, underpinned by a variety of factors from increased affordability and disease prevalence to changing government regulations and new drugs discoveries.

A glance at Glaxo

Investing in the pharmaceuticals space certainly isn’t a guaranteed slam dunk, though, as long-term shareholders in GlaxoSmithKline (LSE: GSK) will attest to. Through a series of revenues-crushing patent expirations over the past decade, earnings performance has been volatile and dividend growth has been elusive, the drugs giant having kept the full-year payout at 80p per share for the past several years.

And the Brentford business is still suffering the effect of these exclusivity losses. Indeed, it estimates that adjusted earnings will fall between 5% and 9% at stable exchange rates in 2019, reflecting the recent approval of a generic competitor to Advair in the US. Stateside sales of GlaxoSmithKline’s respiratory treatment tanked 30% at constant currencies last year.

As a consequence of these pressures, the full-year dividend is expected to remain at 80p for 2019 for a sixth straight year.

Piping hot

Things are far from bad, though. Thanks to the impressive progress that its research and development teams have been making in rebuilding the company’s product pipeline, I’m confident that the future is extremely rosy for this FTSE 100 stock. As things currently stand, GlaxoSmithKline is a company that I’d happily stake my last £1,000 on.

The reconstruction of its drugs pipeline over the past few years is building a base for the business to enjoy a long run of earnings growth running through the next decade and beyond. Sales of new respiratory products Nucala and Ellipta leapt 38% (again, at constant currencies) last year to reveal just some of the success of its recently-released drugs.

The tie-up with US pharma giant Merck to develop immunotherapy for hard-to-treat cancers is expected to complete in the current quarter and leaves GlaxoSmithKline with some 46 new medicines in its development pipeline, several of which in hot growth areas like HIV and oncology are due to release important datasets over the next couple of years. Indeed, critical data on three fresh cancer treatments is due in 2019 alone, with GlaxoSmithKline eyeing the launch of all three within the next couple of years.

So City analysts expect the pharma titan to endure a 7% earnings fall in 2019. So what? This still leaves the business dealing on a low forward P/E multiple of 14.4 times. And I consider this to be a bargain given the brilliant growth opportunities afforded by the ever-growing pharmaceuticals market and GlaxoSmithKline’s improving pipeline. What’s more, that 80p dividend yields a lip-smacking 5.3%. I’d very happily spend my last few pounds on securing this Footsie drugs star.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.