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

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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. 

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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.

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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.

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