Stocks to Consider: GlaxoSmithKline (GSK:N)


GlaxoSmithKline (GSK:LSE, GSK:N) is a stock that I have been quite happy with. It is a very large pharmaceutical company headquartered in London. I was attracted to it because it had a dividend yield greater than 5% and it seemed to be quite a stable company. Health care is a good sector for investment in any portfolio. I originally bought it in about 2008 for about $43 after it had seemed to come down quite heavily, before it went on to drop even further. It currently trades at about $41.50 so I’m a little down on that purchase. I bought some more in 2009 near its low of about $30, so overall I am up on this stock. At its current price it yields just over 6% with a P/E of under 18.

An analysis at Motley Fool UK suggests that the yield is quite safe. Over the last 5 years Glaxo has increased its dividend by 4.62 (according to the Globe and Mail), though there was a decrease in the past year of about 9%. I don’t think that’s quite the case, I suspect that what happens with some UK companies is that they pay two dividends of differing amounts each year and the calculations end up being a little distorted as a result.

According to their Canadian website, they are “one of the world’s leading research-based pharmaceutical and health-care companies”. The American website says “we are dedicated to improving the quality of human life by enabling people to do more, feel better, live longer.” They were founded in the 1850s per Wikipedia, and have grown through a merger with Burroughs Wellcome in 1995 and with SmithKline Beecham in 2000. Besides treatments for asthma, cancer, infections, diabetes and mental health, its brands include Tums, Nicoderm and Nicorette, Aquafresh and Sensodyne toothpaste.

To my mind, it passes the recession-proof test in that it has products people will continue to buy despite what is going on in the economy.

Where pharmaceutical stock prices tend to falter is over the patent pipeline. Pharmaceutical companies will spend umpteen millions to bring a new product to market (and often spend millions on products that in the end don’t make it to market). They have patent protection for a number of years until it eventually expires and anyone can manufacture their product. Investors get jittery upon learning that a treatment that looked promising won’t make it to market, or that the overall number of promising treatments under research that might head to market is declining.

This is for information purposes only and is not meant as investment advice. Always do your own research before buying any stock.


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