Pharmaceutical giant GlaxoSmithKline (NYSE:GSK) operates all over the world, has an extensive catalog of successful consumer products, is heavily involved in the healthcare system, and has the potential for creating many new treatments. But its share prices are still down by about 21% from the five-year peak it enjoyed in January 2020.
The company’s shares are trading at historical lows, making this an opportune time to consider adding GlaxoSmithKline stock to your portfolio.
How GSK Got Started
The company was born when Glaxo Wellcome and SmithKline Beecham decided to merge their pharmaceutical companies in January 2000. GSK officially opened for business in 2002.
Along with such well-known consumer products as Tums, Sensodyne, and Nicorette, the company also has a large interest in international vaccine production. Approximately 70% of the vaccines it manufactures are sent to emerging markets in countries such as Africa and India. The company allocates a lot of its R&D funding to fight malaria in these areas.
Over the past few years, GSK has also spent much time and energy on developing respiratory syncytial virus (RSV) vaccines and new treatments for shingles. The company was in the running to develop a vaccine for the COVID-19 virus, but fell behind because its mRNA platform was not prepared in time. It is now focusing on creating the next generation of COVID-19 vaccines, which are intended to target some of the concerns that have risen during the pandemic.
Just in 2020, the vaccines department alone made in excess of 7 billion British pounds, and that is just the beginning. Management expected significant growth over the next 10 to 15 years as the insatiable demand for vaccines around the world continues to increase.
Is Glaxo a Good Stock To Buy?
Today, GSK shares are trading at much lower prices than ever. This results in an unusually high dividend yield of 5.25%, which makes for a very nice return for investors while they wait for the stock price to go back to its usual levels.
GlaxoSmithKline is steadily making huge strides in its expansion throughout emerging markets, and it should be a solid company to own for the long term.
But it’s not without some risk. GSK identifies at least 22 risk factors that could have a significant impact on how the company performs financially. Risks can range from environmental liabilities and product liability legislation to bribery and failure to adequately protect intellectual property.
The three biggest risk factors are:
- Inadequate protection of intellectual property
- Product liability litigation
Inadequate Protection of Intellectual Property
In all companies, research and development is a huge expense, and Glaxo is no different. It invests heavily in R&D so that it can bring new drugs and treatments to market. Consumers and healthcare providers all over the world rely on medications they can trust.
It takes proper research and development to ensure the drugs are safe and effective. In 2011, GSK invested about 4 billion pounds in R&D. However, patents only last so long, and as a company’s drugs lose their patent rights, generic copycats take over, stealing the market share from companies like Glaxo. This often forces steep price discounts just to stay in the game.
Adequate protection of intellectual property can prevent much of this loss, but patents can only be stretched so far and then they will expire.
Product Liability Litigation
Even after years of research and development and product testing, product launches can go perilously wrong. Patients sometimes have unexpected side effects. New drugs and new treatments might have severe unexpected and unwanted side effects that may lead to litigation and result in fines and compensation.
For example, just last year GlaxoSmithKline settled a lawsuit in the U.S. over its diabetes drug Avandia that cost the company 1.6 billion pounds. These types of cases can seriously cut into your profit shares.
Pharmaceutical companies make a lot of money — no secret there. Glaxo enjoys margins of around 20%. This is in part due to its ability to charge high amounts for drugs or treatments that will alleviate symptoms. But when is charging a lot too much? Governments are increasingly stepping in and putting caps on what pharma companies can charge, and that threatens GSK investors’ returns.
How Often Does Glaxo Pay Dividends?
Most companies pay dividends every quarter, although some choose to pay semiannually or monthly. The company’s board of directors must approve each dividend before it is paid. After approval, the company will announce when the dividend will be paid, how much the dividend is worth, and the ex-dividend date.
With Glaxo, there are typically four dividend payments per year, not including specials. So, with a 5.25% yield, a $100,000 investment will give you about $5,250 in dividend income per year.
The stock market is historically turbulent during economic recessions in particular, but some investments are safer than others. Right now GSK has the ingredients of a good bet. The prices are down, yet could rise substantially over time. Plus, there is no sign of the company slowing down any time soon. So, if you are looking for dividend and upside, GSK should be on your shortlist.