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The GSK share price: Is now the time to buy?

The latest quarterly figures from pharma giant GlaxoSmithKline (LSE: GSK) slipped under the radar for many investors on Wednesday, but I think they showed encouraging signs of growth.

Today I want to look at the good (and bad) news from the FTSE 100 firm’s first-quarter numbers, and give my view on the shares. I’ll also take a look a smaller dividend stock with a tempting 6%+ yield.

Ahead of expectations

A new two-part HIV treatment and the shingles vaccine Shingrix helped Glaxo deliver sales and profits that were comfortably ahead of analysts’ forecasts during the quarter.

The group’s sales rose by 5% to £7.7bn, compared to forecasts of £7.5bn. Adjusted earnings climbed 18% to 30.1p per share, comfortably ahead of forecasts of 26.1p.

Several new respiratory products also delivered strong growth, with sales rising by 25% to £631m. However, this gain carries a sting in the tail, as I’ll explain.

Cheap copy drugs pose threat

Glaxo warned that despite its strong first-quarter performance, expectations for a 5%-9% fall in adjusted earnings this year are unchanged.

Why? One of the firm’s most successful medicines, asthma drug Advair, is likely to start losing sales to a much cheaper generic alternative, which was recently approved by the US authorities.

Forecasts for the full year are also dependent on the firm’s consumer healthcare deal with Pfizer completing by the end of the year. As I’ve explained before, I think this deal should eventually help to secure Glaxo’s dividend and reduce its debt load.

For now, the firm expects to maintain the dividend payout at 80p per share, giving Glaxo stock a forecast dividend yield of 5.1%. Although this payout looks stretched to me, I still think these shares are likely to be a good long-term buy for income investors.

Should you buy this 6.6% yield?

Insurance firm Lancashire Holdings (LSE: LRE) is a long-time favourite of mine. This specialist business provides insurance for large valuable assets such as oil rigs, ships and airliners.

The firm’s shares offer a tempting forecast dividend yield of 6.6% for 2019, but despite a solid trading update today, I’m not sure that now is the time to rush into this stock.

That might seem a strange view, given the insurer’s attractive dividend yield. However, the firm’s payout is largely dependent on a special dividend the firm pays each year based on how much surplus capital it has.

Various factors influence this payout, including the cost of major claims and how many new business opportunities the company has. At this early stage in the year, it’s hard to say whether current forecasts will prove accurate. However, last year’s dividend payout of $0.35 per share was significantly below forecasts in October for $0.44 per share.

Although analysts have pencilled in a payout of $0.59 per share for 2019, there’s no guarantee this will be possible.

Chief executive Alex Maloney says that the firm is seeing early evidence of a return to stronger pricing. But premiums written by it only rose by 0.6% to $217.2m during the first quarter, suggesting any improvement in pricing power is limited.

Lancashire stock now trades at nearly 14 times 2019 forecast earnings and at 1.6 times its book value. In my view that’s probably high enough. I rate Lancashire as a long-term income stock. But I’d wait for the shares to dip before buying. I’d hold.

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Roland Head 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.