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Worried about the State Pension? I think the GSK share price could help you retire early

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The rising State Pension age is likely to be a continuing concern for people of all ages, as it’s due to increase to 68 over the next two decades. As such, buying good value shares that offer growth potential could be a sound means of generating a sizeable nest egg by the time retirement arrives.

One stock that could offer those two attributes is GlaxoSmithKline (LSE: GSK). The FTSE 100 pharma stock is in the process of delivering a new strategy, while its income growth prospects could improve. Alongside another dividend growth share which reported improving results on Wednesday, it could be worth buying for the long term.

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Improving prospects

The company in question is engineering and construction specialist Balfour Beatty (LSE: BBY). Its full-year results showed an increase in underlying pre-tax profit of 10% to £181m. It was able to achieve industry-standard margins in the second half of 2018, with gross debt declining by over 40%. It now has a higher quality order book, increasing 11% to £12.6bn. This suggests it’s experiencing improved operating conditions, and may be able to generate stronger financial performance in the long run.

Looking ahead, Balfour Beatty is expected to post a rise in net profit of 22% in the current year. It trades on a price-to-earnings growth (PEG) ratio of 0.7, which suggests it could offer a wide margin of safety. Alongside this, it’s expected to increase dividends by 81% in 2019, which puts it on a yield of 2.3%. Since dividends are covered 3.4 times by profit, they could grow at a fast pace. This may help to catalyse the company’s share price performance over the long run.

Changing business

While GlaxoSmithKline has experienced a mixed recent past, its future appears to be bright. Under a new CEO it’s in the process of refocusing on its pharma segment, with M&A activity enhancing its capabilities in this area. It has also decided to pivot away from its consumer healthcare business, which may provide it with greater efficiency and focus as it seeks to compete in what could prove to be a highly lucrative pharma industry.

With the world’s population continuing to increase in terms of size and age, the company could be well-placed to benefit from a tailwind over the long run. Its dividend potential remains high, with shareholder payouts currently covered 1.5 times by profit. Having frozen dividend growth in recent years, a positive earnings growth outlook suggests that there may be a return to rising dividends over the medium term.

Since the State Pension age is forecast to rise, GlaxoSmithKline could offer a potent mix of income and growth appeal. Trading on a price-to-earnings (P/E) ratio of 13, it appears to offer good value for money when compared to its large-cap healthcare industry peers. As such, now could be the right time to buy it.

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Peter Stephens owns shares of GlaxoSmithKline. 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.

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