GlaxoSmithKline(LSE:GSK) is a Big Pharma company.
Through its various divisions, GSK produces vaccines, pharmaceuticals, and consumer health products. Although it is a global leader in the industry, GSK has recently faced some challenges as Covid-19 has disrupted many vaccination programs globally. The pandemic has also decreased demand for some of the company’s consumer health products.
Partly as a result, the GSK share price is down over 20% year-to-date. Given this performance, what’s next for GlaxoSmithKline’s dividend? Here’s what I think.
GlaxoSmithKline dividend for this year
GlaxoSmithKline paid an annual dividend of 100p per share for 2015 and then 80p per share from 2016 to 2019. For 2020, GSK’s Q1, Q2, and Q3 declared dividends per share were consistent with last year. I think the odds are good that management will pay the same total annual dividend of 80p per share this year. If that happens, GSK’s dividend yield will be around 5.83% at current prices.
I also believe management will keep the dividend per share the same because GlaxoSmithKline earnings haven’t been all that great this year. For FY2020, management expects adjusted earnings per share (EPS) to decrease 1%–4% at constant exchange rates, with the adjusted EPS for the year “tracking to the lower end of range” so far.
If GlaxoSmithKline isn’t making as much this year as it did last year, I can’t see why management would raise the dividend. Given that it’s making around the same as before, I don’t see management cutting the dividend either.
As for the dividend in the future, I think management will probably keep the dividend per share around the same. Currently, GSK is paying a considerable percentage of its EPS in the form of dividends, and analysts don’t see the company’s EPS rising all that much in 2022 or 2023.
According to the consensus, analysts expect GlaxoSmithKline to earn an EPS of 116.5p this year, 117.4p in 2021, and 125.6p in 2022.
Is the stock a buy?
I am bullish on Big Pharma due to the advance of technology. I reckon advances in AI and quantum computing will make possible a number of blockbuster drugs.
As an example of the wonders of AI in the biotech sector, Alphabet‘s Deepmind AI system recently solved a protein folding problem that could be a game changer in medicine, research, and bioengineering. Up until the AI breakthrough, the protein folding problem had remained unsolved for five decades.
With AI tech likely to continue to advance, I believe there will be more breakthroughs in the future. Those breakthroughs could make possible new biotech and pharmaceutical solutions that could generate huge profits.
As GlaxoSmithKline is among the industry leaders, I reckon the company will likely benefit from the AI/quantum computing trend. As a result, I think the company’s future earnings potential is probably higher than what the market currently expects.
Many investors also think GSK is undervalued in terms of the sum of its parts. An anticipated consumer health division spin-off could help the market value GSK better.
Although I don’t expect the annual dividend to increase at all in the next few years, I’d still buy and hold GlaxoSmithKline as a value stock.