The Glaxo (LSE: GSK) share price has underperformed for years, but I have always admired the FTSE 100 stock for its dividend. Now both are going south.
The Glaxo share price has gone nowhere in the last 10 years. It traded at 1,412p this day in March 2012, and trades at 1,485p today. That’s an increase of just 0.5%. In a decade. Just saying.
Glaxo share price disappoints
That wouldn’t normally worry me, because the main reason I’d buy GlaxoSmithKline is for its dividend. The £75bn pharmaceutical giant has a reputation for being one of the most reliable and rewarding income stocks on the FTSE 100.
At first glance, it still looks like it’s doing the business. The current yield is 5.39%, or roughly 10 times what I would get on instant access. The problem is that the actual dividend payment has not increased in years. Instead, it has been held at 8op a year throughout chief executive Emma Walmsley’s tenure, which began in 2017. In fact, it hasn’t increased since 2014.
Walmsley has justified this by saying the money would be better off invested in replenishing the company’s drugs pipeline. For a while, I agreed. Now I’m not so sure.
I’m beginning to wonder how well that money is being invested, if the company still cannot find some extra cash to reward loyal income-seeking shareholders. The only reason today’s yield looks good is that the Glaxo share price has done so poorly.
One thing I really like about investing in top FTSE 100 dividend stocks is my income should increase year after year as management hikes shareholder payouts. That’s particularly valuable today, as inflation skyrockets and we all struggle to keep up with the cost of living. Yet the Glaxo share price doesn’t offer me that prospect.
I don’t call that progressive
Glaxo’s yield is forecast to FALL to just 3.5% in 2023, when what management calls “the new GSK progressive dividend policy” begins. That exciting-sounding project will see the dividend rebased at just 45p per share. Thanks.
That’s a little over half what it paid eight years ago. This follows the move to hive off the New Consumer Healthcare business, which is likely to pay a further 10p per share, lifting the total payout to 55p. It could be even lower than that. The ailing Glaxo share price isn’t the only issue here.
So investors who get 80p today will get just 55p tomorrow. Management calls this progressive, but it seems to be going a long way backwards to go forwards.
Zero share price growth AND a falling dividend? That’s not for me. GlaxoSmithKline remains a great British company, but I’m not buying it today. Perhaps I’m being short-sighted. The Glaxo share price does look a bargain trading at a valuation of just 12.4 times forecast earnings.
There are positives. Last month, Glaxo posted better-than-expected Q4 earnings, as Covid-related sales hit £1.4bn. Adjusted operating profit fell, but was still a healthy £8.82bn. Management expects to generate more than £10bn worth of cash from operations by 2026, which will hopefully filter through to shareholders. However, I’ve been patient with Glaxo share price underperformance for long enough. Time for me to look elsewhere.
Harvey Jones doesn’t hold any of the shares mentioned in this article. 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.