Picking robust individual shares in a chaotic market may not feel easy. Today, I’d like to discuss two pharma bellwethers that you may want to research further, especially if you are looking for passive dividend income in a retirement portfolio. They’re AstraZeneca (LSE: AZN) and GlaxoSmithKline (LSE: GSK), the two top shares of the FTSE 100 index by market cap.
Amid Covid-19 uncertainty, the healthcare space has managed to hold up significantly better than other industries. I expect even further upside potential for the industry. First I’m taking a look at how £1,000 invested in each would have fared in the past. Given their current and pipeline drugs, I believe one or both might offer a path to riches in the years to come.
Pharma belongs in long-tem portfolios
I expect the volatility in the markets to continue in the coming weeks. Therefore I’d make pharma stocks part of any long-term portfolio. Although past performance does not guarantee future success, it’s still important to appreciate how both AZN and GSK have done recently.
Under each company name below, you can see how the price has changed over the past five years and what this means in terms of the compound annual growth rate (CAGR).
Past share prices are for late May 2015. Current ones are closing prices on 21 May. I haven’t factored-in any brokerage commissions or taxes.
Please note that both pharma firms pay regular dividends. The calculation below doesn’t take into consideration the dividends or reinvesting that income.
AstraZeneca’s current dividend yield stands at 2.5%. The group’s website also provides a financial calculator for shareholders.
GSK’s dividend yield is 4.8%. Both stocks are expected to go ex-dividend in early August.
The share price has gone up from 4,475p to 8,961p. It means CAGR of 14.9%, so £1,000 would have increased to about £2,000.
Year-to-date, the shares are also up over 14%.
On 29 April, the pharma giant released results for Q1 that beat expectations. Management highlighted that the group grew in every region with Europe as the standout performer.
It has a robust portfolio of products for major disease areas, including cancer, cardiovascular, diabetes, gastrointestinal, infection, inflammation and respiratory.
A wide range of pharma companies are currently racing to develop a vaccine against Covid-19 and AZN is one of the forerunners. In recent days, the group has received over $1bn in funding from a US agency to support the company’s efforts to develop and mass produce the vaccine starting this autumn.
And the share price has been reacting extremely well, especially so far in May. I’d buy the dips.
The share price has gone up from 1,465p to 1,664.2p. It means CAGR of 2.58%, so £1,000 would have increased to about £1,135.
Year-to-date, the shares are down about 5%. Although GSK has underperformed AZN, I believe it still deserves your due diligence.
GSK also announced robust Q1 results in late April. Revenues were up 19% year-on-year. The healthcare company is a top global vaccine player, producing close to 2m vaccines daily for global distribution.
Therefore it’s no surprise that the City believes GSK also has a strong opportunity in the current vaccine race. It’s working with France’s Sanofi to develop a vaccine that may enter clinical trials this year.
Recently it has also announced successful clinical trial results on an injection to prevent HIV. Long term, I’m bullish on GSK.
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tezcang 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.