It’s a big day for shareholders of GlaxoSmithKline (LSE: GSK), as the pharma giant unveiled its latest corporate shake-up. As this news was absorbed, the GSK share price rose almost 70p (5%) between 11am and 2.30pm, before falling back later in the day.
The GSK share price in 2021
The GSK share price ended 2020 at 1,342p and stands at 1,417p as I write. That’s an increase of 75p (5.6%) so far in 2021. However, this FTSE 100 stock had a rough start to this year. At its 2021 low on 26 February, GSK closed at 1,190.8p. On 20 February, with the shares languishing at 1,217p, I said, “I will continue to reinvest my GSK dividends into buying yet more of this dirt-cheap FTSE 100 share.” I’m glad I kept buying, because the share price is £2 higher today. That’s a welcome gain of almost a sixth (16.4%) in four months.
Despite recent gains, the GSK share price has been a long-term lemon. As a GSK shareholder for 30+ years, I should know. Indeed, I remember when the shares were flying high, peaking at a closing high of 2,288p on 8 January 1999. I wish I’d sold then, before the dotcom bubble burst and the UK stock market imploded. Alas, the GSK share price has never reached its pre-2000 heights.
‘New GSK’ arrives in 2022
Before the Covid-19 pandemic, the GSK share price hit a closing peak of 1,846p on 17 January 2020. But GSK didn’t enjoy the ‘vaccine bounce’ that other leading drug stocks had in 2020/21. At 1,417p, the shares are 429p — more than a quarter (23.2%) — below this 2020/21 closing high. This is why CEO Dame Emma Walmsley today released plans for ‘New GSK’.
Walmsley set demanding targets for the group, aimed at reviving the ailing GSK share price. GSK is targeting sales growth above 5% a year and profit growth exceeding 10% a year over the five years to 2026. In 2031, 10 years from now, the sales target exceeds £33bn. GSK also aims to strengthen its balance sheet to support investment in growth, following its split in two in 2022. GSK also expects cash generated from operations to exceed £10bn by 2026.
GSK’s market-beating dividend is a big attraction to income-seeking investors like me. At 80p a share and based on the current GSK share price, the dividend yield is 5.6%. However, the 2022 combined dividend per share from New GSK and New Consumer Healthcare will be around 55p. That’s a cut of almost a third (31.2%). Thereafter, the New GSK dividend is expected to start at 45p in 2023. But shareholders can expect post-demerger yearly dividends from New Consumer Healthcare, too.
I’m not convinced, but I’ll hold
To be honest, I’m not entirely convinced by this new strategic plan. It appears the market broadly agrees with me, as the GSK share price has dropped 26.6p (-1.8%) from Wednesday’s earlier high of 1,443.6p. Setting bold, ambitious targets is one thing, but hitting them requires the right leadership team. Frankly, I’m not convinced that Walmsley, CFO Iain Mackay and her management team are the right people to take this £70bn FTSE 100 heavyweight forward. After all, under Walmsley’s four-year reign since April 2017, the shares are actually down 250p (15%), while rival pharma stocks have boomed.
Though I’m sceptical and would prefer new leadership, I’ll stick with my shareholding at the current GSK share price. Only because 35 years of investing have taught me not to sell in haste!