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After the GSK share price leaps 21% in 4 months, I’m thinking about selling

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A Dechra Pharmaceuticals scientist uses a microscope
Image: Dechra Pharmaceuticals

I’ve been a shareholder in pharmaceutical giant GlaxoSmithKline (LSE: GSK) since the late 1980s. Alas, over three decades, the GSK share price has been a serial disappointment. After surging to record highs in the previous millennium, the shares then struggled for years. And just when they seemed to be strengthening again, Covid-19 crashed markets and sent the stock steeply south once more.

The GSK share price’s rise and fall

At its record peak in 1999, the share price briefly topped £23. I know a GSK lifer who sold her entire holding at these elevated prices! But this peak didn’t last and the stock crashed back down during the 2000-03 market crash. The shares then bumped along for years, but rose to close at 1,846p on 17 January 2020. Then coronavirus ravaged the world and stocks went into meltdown.

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Despite GSK being the world’s #1 vaccine maker, the GSK share price has been volatile in the past 16 months. It plunged in March 2020, but rebounded to end 2020 at 1,342p. Then price weakness resumed, with the shares falling to a fresh low of 1,190.8p on 26 February. However, over the past four months or so, the shares have staged a solid comeback. On Wednesday, they closed at 1,434.58p, up almost 245p from their 2021 low. That’s a leap of more than a fifth (20.5%) in 130 days. Not bad at all and most welcome, but what next?

GSK has been a poor long-term performer

The GSK share price is ahead 6.1% over one month, 1.9% over six months and 6.9% in 2021. Then again, it has dropped by 10.6% over one year and 13.2% over five years. Hardly the sort of performance I’d like to see as a long-term holder. Also, as GSK is the largest single stock in my family portfolio, its price has a significant impact on our wealth.

Nevertheless, the reason why I stick with GSK is very simple. For more than five years, the company has paid a yearly cash dividend of 80p a share. Based on the current GSK share price, that’s a market-beating dividend yield of nearly 5.6% a year. These cash payouts provide hefty passive income for our family portfolio. This is largely why we’ve stuck with the shares for so long. But all this is set to change in 2022, when GSK will break up into two separate companies. At this point, the £72.2bn company’s dividend will be slashed to 55p. Thereafter, the combined yearly dividend from New GSK and New Consumer Healthcare should exceed 45p. Alas, these two dividend cuts undermine my personal case for holding on to the stock in future.

Right now, the GSK share price stands at a discount of 14.1% to its 52-week high of 1,669.8p on 20 July 2020. It trades on a price-to-earnings ratio of 13.7 and an earnings yield of 7.3%. That isn’t expensive in historical terms, but GSK’s sales are expected to decline for a couple of years ahead. 

I feel I need to reduce our future exposure to the GSK share price, even though its plans could yield rich rewards one day. I’d think about selling in any decent price surges in 2021/22. Ideally, I’d like to exit at levels well above £15, but who knows when that might actually happen? Not me, that’s for sure. Finally, would I buy this FTSE 100 stock today if I didn’t already own it? I’m not sure that I would, to be fair.

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Cliffdarcy owns shares of GlaxoSmithKline. 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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