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A 4.5% FTSE 100 dividend yield I’d buy for my ISA and never sell!

2019 has proved to be a great time for many of London’s listed pharmaceutical companies. I explained recently why the outgoing year has been a fruitful one for AstraZeneca shareholders. A combination of bubbly demand for safe-haven stocks and brilliant progress on the sales front has driven its share price to the stars.

The very same drivers have also underpinned gains over at GlaxoSmithKline (LSE: GSK), and its share price has risen 28% since new year trading kicked off in January. Despite this, the FTSE 100 firm still looks pretty cheap as it trades on a forward price-to-earnings ratio of just 15 times, giving it plenty of scope to punch more meaty gains in 2020.

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More to come

Indeed, so strong have new product sales been in recent times that Glaxo has been encouraged to hike its full-year guidance over the past several weeks. Between July and September, sales of its newly launched labels were up 11% at constant exchange rates, prompting the Brentford business to predict flat earnings growth for the full year versus the previously forecasted drop of 3% to 5%.

Like AstraZeneca, Glaxo has thrown the kitchen sink at overhauling its product pipeline and has also had a string of testing successes and regulatory approvals in the fast-growing areas of oncology, HIV and respiratory tucked under its belt since the turn of January. Long gone, then, are the patent expirations that played havoc with profits growth earlier in the decade.

The Footsie firm isn’t quite out of the woods, though, with the cost of legacy losses on key products like Crestor, allied with the vast expense of its R&D programme, causing City analysts to forecast a 2% earnings reversal in 2020 right now. Clearly, unlike AstraZeneca, Glaxo can’t be considered a hot growth prospect just yet.

Lots to love

In my view, though, the chances of this forecast being significantly upgraded as the year progresses are strong given the rate at which sales are improving. That strong double-digit-percentage rise in revenues in the third quarter was up markedly from the 5% rise posted in the first six months of 2019, and creates a buzz as to what could be in store when full-year results are unpacked on February 5.

And it’s unlikely that Glaxo’s turnover boom this year will prove to be a flash in the pan, as healthcare spending revs up all over the globe. According to a recent report from The Business Research Company this will prompt sales of pharmaceutical drugs to rise at a compound annual growth rate of 6% through to 2022.

There’s no guarantee that Glaxo’s pipeline of more than three dozen products will create the blistering sales drivers that we’re all hoping for, such is the unpredictable and lumpy nature of drugs development. But given the company’s strong R&D record in recent times, things are looking good for the Footsie firm for the next decade. I’d happily buy it today with that undemanding earnings multiple and hot 4.5% dividend yield providing an added sweetener.

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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.