In early 2020, stock markets were hitting all-time highs and investors still had their innocence. Then the coronavirus crisis overwhelmed the world and the FTSE 100 cracked, crumbled, and then crashed.
The FTSE 100’s steepest crash
On 17 January, the FTSE 100 hit 2020’s high of 7,675, up 1.7% in 17 days. In late February, the index began what proved to be its sharpest crash in history. Bottoming out on 23 March, the FTSE 100 limped along at 4,994, more than a third (35%) below its 2020 peak.
The FTSE 100 Covid-19 shake-up
Covid-19 has caused complete upheaval in the FTSE 100, particularly among the upper echelons. For years, the top spots among UK market mega-caps were dominated by big, familiar household names. Global giants such as oil firms Royal Dutch Shell and BP, and mega-bank HSBC once dominated the top table of the FTSE 100. Four months on and everything has changed, perhaps permanently.
Today, BP clocks in at £62bn and Shell hovers around a £100bn valuation. The FTSE 100’s #1 is drug firm AstraZeneca (LSE: AZN), while its close rival, GlaxoSmithKline (LSE: GSK), has leapt to fourth place.
AZN v GSK: Which would I buy?
As pharma firms are now #1 and #4 in the FTSE 100, I decided to pit them against each other. Here’s how our two contenders shape up:
Here is AstraZeneca in a nutshell:
Share price: 8,915p | 12-month price change: +51.7% | Market value: £113.5bn | Price-to-earnings ratio: 103.1 (forecast to fall to 27) | Dividend yield: 2.5% | Dividend cover: Not covered
And now GlaxoSmithKline:
Share price: 1,679p | 12-month price change: +9.2% | Market value: £84.5bn | Price-to-earnings ratio: 15.7 | Dividend yield: 4.75% | Dividend cover: 1.34
Astra has had a rip-roaring rise, with its shares rocketing by more than half in 12 months. Apparently priced at over 100 times earnings, strong earnings growth will see its shares fall to a more modest rating of 27 in 2020. Do note that Astra’s 2.5% dividend yield is lower than the FTSE 100 average and not presently covered by earnings (as yet).
GSK shares have risen less than a tenth in the past year and are modestly priced at under 16 times earnings. Furthermore, its chunky annual dividend of 80p – held steady for four years – offers a dividend yield of 4.75%, almost twice Astra’s. Also, GSK’s dividend is covered 134% by earnings, giving room for manoeuvre and scope for growth.
For me, GSK comes out on top every time in this ‘heavyweight pharma title’ bout. Indeed, I’ve owned GSK shares for almost three decades. Conversely, Astra’s meteoric rise to the peak of the FTSE 100 reminds me of the myth of Icarus. He flew too close to the sun and crashed back to earth. For me, despite its attractive drug cupboard and strong future pipeline, Astra’s shares are too highly priced for my portfolio!
With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…
As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.
With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?
Fortunately, The Motley Fool is here to help…
Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*
But here’s the really exciting part…
This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.
*Please be aware that dividends are variable and not guaranteed.
Cliffdarcy owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended HSBC Holdings. 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.