The Motley Fool

Forget GlaxoSmithKline! 2 ‘better’ pharmaceutical stocks I think could help you retire in luxury

There’s a hell of a lot to like about GlaxoSmithKline (LSE: GSK) from an investment point of view. It’s always been committed to paying juicy, inflation-busting dividends, even when patent expirations on superstar labels put the boot into the bottom line. Indeed, in spite of some quite severe earnings turbulence in recent years it’s still kept the annual payout locked at 80p per share since 2014 and is expected to shell out similar payouts in 2019 and 2020.

Consequently, Glaxo shareholders can drink in a dividend yield of 4.7% through this period, a chubby reading which beats the broader FTSE 100 forward average by a nose. And it’s probable that investor payouts will get increasingly juicy beyond the medium term as its pipeline of new medicines keeps on delivering (it currently has 44 in development).

A better buy?

But is Glaxo the best pharmaceuticals play you can get hold of right now? Total shareholder returns (including reinvested dividends) for the firm come in at 47% for the past five years.

By comparison, returns at Dechra Pharmaceuticals (LSE: DPH) clock in at 344.1% over the same period. Sure, those aforementioned patent issues may have hampered Glaxo’s run of late, but Dechra’s far superior record illustrates in large part the scintillating growth outlook for the animal care market that’s seen buyers piling in en masse.

Healthcare for livestock and companion animals is increasingly big business, as recent data from Zion Market Research shows. It estimates the animalcare market will grow by more $11bn over the seven years to 2024 to total a colossal $41.8bn.

It’s little wonder, then, that Dechra saw group revenues bloom 17% in the 12 months to June, a result underpinned by its massive acquisition programme of the past decade which has greatly boosted its product stable and geographic footprint.

City analysts expect earnings at the FTSE 250 firm to swell an extra 14% in the new fiscal year, keeping Dechra’s strong record of double-digit annual increases in business. And it’d be a brave man who bets that profits won’t continue booming beyond the near term.

Another top buy

I also reckon UDG Healthcare (LSE: UDG) has what it takes to keep delivering cosmic shareholder gains in the years ahead. It’s generated a total return of 144% in the past half a decade and is likely to keep pleasing investors as global drugs demand booms.

You see, UDG is involved in a broad array of health-related services, from providing advertising and advisory services to the medical industry, through to manufacturing and packaging drug products. And with the worldwide healthcare budget growing — driven by North America and Asian emerging markets — and an increasing-elderly population driving the number of age-related diseases steadily higher, the long-term demand outlook for this company looks pretty bright.

Like Dechra, UDG has also delivered some meaty profits increases in recent years. And after a predicted 5% rise for the 12 months ending September 2019 it’s expected to pick up the pace again with an 11% increase in the following fiscal year. And, like the animalcare specialist, UDG has the financial firepower to keep engaging in top acquisitions to drive business too.

Hidden Opportunity

The Alternative Investment Market (AIM) boasts the enviable record of being the most successful growth market in the world – so it makes sense to go digging for gold there, right? Well, plenty of companies have listed there and lost…

However, one strategy for capturing capital gains is to invest in expanding firms that have already proven their mettle with rising revenues, earnings and cash inflow – and we believe we’ve identified a small-cap winner with lots of ongoing growth potential in our recently refreshed report, “A Top Small-Cap Share From The Motley Fool”.

Further still, we’re giving away this research free of charge! Click here now to obtain your copy.

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