Dividend of the week - GlaxoSmithKline

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Dividend of the week - GlaxoSmithKline

Ok. It is big Pharma time. I am going to use the DividendMax tool to select on sector and then use other criteria to try and whittle down to the best Pharma dividend stock out there and that will become my dividend of the week.

Because a lot of the Pharma stocks pay quarterly, I am going to use the 24 Month criteria to compare these stocks. The initial list reveals 18 stocks and we can immediately eliminate Gilead Sciences Inc who will not pay a dividend this year. The next eliminator will be growth, so I am going to eliminate all of the stocks that will not grow the dividend this year. The list remains large at 16.

Lets next look at dividend history. We want all of the stocks that have paid consecutive increases for at least the last 5 years. That brings the list down to a more manageable 7 stocks. The list, in annualised yield order, over 24 months is AstraZeneca (6.56%), Glaxosmithkline (5.91%), Johnson & Johnson (3.71%), Abbot Labs (3.4%), Medtronic (2.59%), Monsanto (1.72%) and Shire (0.59%). That is 3 Uk and 4 US stocks. From a yield perspective, we can eliminate those below 3% leaving us with 2 UK and 2 US stocks.

Given the multinational nature of the stocks involved, this suggests to me that British Pharma is well undervalued, so we are down to AstraZeneca or GlaxoSmithKline. Both of these companies have been increasing their dividends and buying back their own shares for years as they generate cash at remarkable rates. It is really very difficult to choose between the two, but I am going to go for Glaxo, who I feel has been more proactive in dealing with the industry changes of the past few years and with a clear strategy aimed at the far east.

There are also fears that AstraZeneca revenues and profits will fall dramatically due to a number of important drugs coming off patent.

Glaxo look pretty cheap right now having fallen about a quid in reasonably quick time. They are on a P/E below 12 and yield almost 6%.

Companies mentioned

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