The Motley Fool

Why I’d buy GlaxoSmithKline shares in a Stocks and Shares ISA today

Image source: Getty Images

GlaxoSmithKline (LSE: GSK) shares have printed one of the worst performances on the London stock market this year. I’m struggling to understand why. The pandemic has impacted the business, sure, but the shock has been nowhere near as bad as other FTSE 100 businesses. What’s more, the long-term outlook for this enterprise is hugely encouraging. That’s why I’m considering adding the investment to my Stocks and Shares ISA in the near term. 

GlaxoSmithKline shares on offer

Before I buy a stock, I always like to understand why it’s trading at the level it is. With Glaxo, I’m struggling to determine the reasons behind the company’s underperformance this year. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Yes, the business is expected to report a modest decline in earnings and sales for 2020. The pandemic has disrupted vaccination programmes around the world, and Glaxo is one of the world’s largest vaccine suppliers. As such, the group saw a significant drop off in demand for key products in the first half of the year. 

However, I think this is only going to be a short-term headwind for GlaxoSmithKline shares. Vaccinations can’t be delayed forever. There are still plenty of other viruses and diseases active around the world aside from Covid-19. Sooner or later authorities will want to restart these programmes, or they could have significant long-term implications. 

As well as the above, the company’s outlook has also been dented by a drop-off in the demand for over-the-counter treatments and medications. Once again, I think this could turn out to be a temporary setback. The sales of temporary pain relief products and toothpaste are unlikely to drop significantly over the long term. As long as humans have teeth, they’ll need to be cleaned. 

Stocks and Shares ISA

All of the above leads me to the conclusion that as a long-term investment, GlaxoSmithKline shares are extremely attractive. 

The company is also a dividend champion. The stock currently supports a dividend yield of around 4.5%. The payout is covered 1.5 times by earnings per share, leaving plenty of headroom for the firm to sustain the distribution if earnings drop in the near term.

Owning the investment in a Stocks and Shares ISA would come with significant tax benefits. For example, there would be no additional tax to pay on that dividend income. 

Furthermore, as the company’s sales and profits rebound, I expect the stock to generate significant capital growth for investors in the medium term. Another advantage of using a Stocks and Shares ISA is the fact that no capital gains tax is due on any assets sold. 

The combination of these two tax benefits may allow investors to make the most of an investment in GlaxoSmithKline shares without having to give a portion of their profits to the taxman. 

Considering the company’s long-term potential, I reckon this could be the best way to own the income and growth champion for maximum profit.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Rupert Hargreaves owns no share mentioned. The Motley Fool UK 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.