GlaxoSmithKline (LSE:GSK) is one of my favourite FTSE 100 income stocks. The company is one of the most defensive businesses in the UK’s leading stock index, and as a result, its dividend stream is safer than most.Â
Indeed, as a company active in the provision of consumer healthcare products, as well as vaccines and specialist medications, demand for Glaxo’s products is likely to remain robust for the foreseeable future. With such a diversified portfolio of treatments, even a huge scandal does little to dent the company’s sales and reputation.
That being said, Glaxo has struggled during the past few years, as the company lost the exclusive manufacturing rights to some its key treatments. However, management reacted quickly to right to the ship and, unlike peer AstraZeneca, Glaxo’s sales have now returned to growth as new treatments fill the void.
The company has also been helped by sterling’s devaluation. As the value of sterling against the US dollar has declined, Glaxo’s earnings have pushed higher as the majority of the company’s sales are conducted in dollars. Thanks to this devaluation boost, Glaxo’s earnings per share grew 35% last year.
Further earnings growth is expected for the next two years, as the company profits from the launch of new treatments and continues to notch up steady growth in its existing portfolio. Earnings per share growth of 8% is pencilled in for 2017 followed by growth of 3% the year after. These growth projections suggest shares in Glaxo are trading at a forward P/E of 15, falling to 14.6 for 2018.
Glaxo’s yield is probably its most attractive quality. The shares currently support a yield of 4.8%, and after recent earnings growth the payout is covered 1.4 times by earnings per share, leaving plenty of room for flexibility.
Income and growth
Cruise operator Carnival (LSE: CCL) is another dividend champion that I believe would make a great ISA investment.Â
Unlike Glaxo, which is a defensive income play, Carnival is more of a long term income and growth play. At the time of writing, the shares only support a dividend yield of 2.6%, but that’s no reason to write off the company. Over the next two years analysts expect the payout to increase by 25% and as Carnival’s earnings growth gathers momentum, the payout could rise even faster.
Carnival is set to profit from both the world’s ageing population and the growing wealth of Asia’s middle class. City analysts expect the group to report revenue of $17.1bn for 2018, up nearly 10% from revenue of $15.7bn reported for 2015. Over the same period earnings per share are expected to rise 84% from $2.2 to $4.2 (336p). Based on these estimates shares in the company are trading at  forward P/E of 13.7 for 2018, which seems cheap for such a high growth business.
And it’s likely that Carnival’s growth will continue to pick up steam to the end of the decade. The company is run by an experienced management team and is benefiting from low oil prices, which are improving margins. As the number of people who can afford, and want, to go on a cruise increases, as the largest cruise operator in the world, Carnival is well placed to capitalise on the sector’s growth.