As part of a diversified portfolio, I reckon the FTSE 100 pharmaceutical giant GlaxoSmithKline (LSE: GSK) could be a share to help me make a million. But it isn’t the only share in the wider healthcare sector I’d buy today.
One of the greatest attractions to me is the way GSK keeps pumping out shareholder dividends. It’s true the directors haven’t raised the dividend for a few years, but they haven’t reduced or axed it either – even during the Covid-19 crisis.
Worries about the timing-out of patents are receding. The company is rebuilding earnings gradually. It’s also restructuring, and the business keeps generating plenty of cash to support shareholder dividend payments.
In one example of progress, the company announced at the end of July it’s in advanced discussions with Sanofi to supply up to 300m doses of Covid-19 vaccine. Those talks relate to a vaccine candidate using Sanofi’s recombinant protein-based technology combined with GSK’s pandemic adjuvant system. Both companies reckon they will make their Covid-19 vaccine affordable and available globally.
I think the news underlines how well-placed the company is in the healthcare environment. My guess is those dividends will keep on coming in the years ahead. And with the share price near 1,586p, the yield is running at about 5%. I’d collect the income and reinvest it to help compound my way to a million.
But I’d go for the growth on offer with the FTSE 250’s UDG Healthcare (LSE: UDG) too. The company has a more-than-30-year history of dividend payments and the curve has been generally up. So, from UDG, I’d expect a rising income and capital appreciation from a climbing share price. With a long-term holding period in mind, I reckon UDG can help me invest my way to a million from shares.
UDG operates in the wider healthcare sector. Around 68% of operating profit comes from advisory, commercial and clinical services. And the company derives 32% from clinical trial management and contract packaging services. One way of looking at it is that UDG provides some of the ‘picks and shovels’ needed by the healthcare industry, rather than producing drugs and treatments.
Operations are global. Last year, the firm earned around 64% of revenue in North America. Some 19% came from the UK, and 17% from the rest of the world. Meanwhile, today’s trading update covers the three months to the end of June. And UDG is one of those companies that has managed to keep trading through the pandemic after taking precautions such as requiring many of its staff to work from home.
Previously, the directors suspended the interim dividend, but have today announced that it will be paid to shareholders. I reckon that’s a good sign and underlines the strength of trading as well as the financial robustness of the business.
With the shares at 746p, the forward-looking earnings multiple for the trading year to September 2021 is about 18.5 and the anticipated dividend yield is just below 2%. That’s not a bargain valuation. But I think UDG could shape up to be a steady grower in the years ahead and contribute to a diversified portfolio of shares aimed at making a million.
Kevin Godbold has no position in any share mentioned. The Motley Fool UK has recommended GlaxoSmithKline and 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.