Portfolio Review: GlaxoSmithKline (LSE:GSK)

I recently sold a chunk of my GlaxoSmithKline (GSK) shares, when I had the opportunity to realise 5 years' dividends. But I still have a small holding so should I be adding to it again - or thinking about selling?

High-yield dividend shares form part of Level 6 of the DIY Income Investor Income Pyramid. As the fortunes of these companies change, so does their eligibility for my income-oriented portfolio. So it is worth reviewing the portfolio selection, at least annually.

GSK's website announces, rather pompously: "We have a challenging and inspiring mission: to improve the quality of human life by enabling people to do more, feel better and live longer." Well maybe, but its mission for me is to keep the dividends coming.

Alan Oscroft in Motley Fool has looked at the two big pharmas (GSK and AstraZeneca). They both face a 'patent cliff' - a fear (amongst investors) of potentially declining development pipelines. A patent on a drug is important because it safeguards a high profit margin (to recover the high development costs) - but this is for a limited period only. After the patent expires generic drug makers will step in to manufacture the out-of-patent drugs and sell them cheaply.

GSK shares currently yield 5.1% with a dividend cover of 1.6 (at the low end of the acceptable range). The share price has beaten the FTSE over the past 12 months and 2012 forecasts suggest a dividend of 5.1% (with the dividend cover increasing slightly to 1.7) with a modest p/e of 11.5.

Recent full-year results showed fourth-quarter revenues falling slightly short of City expectations but smaller overheads and restructuring costs put the quarter back in the black, with a £1.25bn net profit reported, against a £633m loss at the same stage last year. Full-year net profit was up threefold, from £1.63bn to £5.26bn with the management expecting Glaxo to return to full-year sales growth in 2012.

Motley Fool notes that GSK's current drug development pipeline is actually looking pretty good, with some important drugs set to appear in the near future. And far from cutting back its investment in R&D, GSK is developing its own science park at Stevenage to attract small Biotec companies.

This share is popular with Citiwire, too - it is their most popular Top Stock with their panel of fund managers. They note that the company returned all £5.6 billion of its free cash flow to shareholders last year in dividends and share buybacks
So this share seems to tick the boxes for yield, value, sustainable market sector and risk: as I only have a relatively small holding, for me it's an ADD.



I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.