This forgotten FTSE 100 dividend hero is up 20% in 3 months but still dirt cheap with a P/E of 10!
FTSE 100 stocks can go from heroes to zeros fast. Quality companies tend to claw their way back though, given time. Thatâs why at The Motley Fool we urge readers to invest with a long-term view.
Income-paying UK blue-chips also offer one major consolation in quiet periods: investors can collect and reinvest regular dividends while they wait for the next burst of share price excitement.
The GSK share price has struggled
I took that view when I added pharmaceutical stock GSKÂ (LSE: GSK) to my Self-Invested Personal Pension (SIPP) in March 2024.
When I began writing for the Fool nearly two decades ago, GlaxoSmithKline, as it was called in those days, was the FTSE 100 stock to beat. It delivered steady dividend income and reliable share-price growth almost year after year. Its time in the sun passed though.
The writing had been on the wall for some time. I remember warning that its drugs pipeline desperately needed replenishing, and Emma Walmsley took on the challenge after being appointed CEO in 2017.
The dividend per share was frozen at 80p for seven years, then was slashed by almost 28% to 57.75p in 2022. The strategy was to invest the savings into R&D. But it took a long time for the rewards to show, because developing new treatments take years, and projects can always fail at the last hurdle.
Last year, the stock was overshadowed by a US class action over its heartburn drug Zantac. The board settled for $2.2bn but there was another worry, as newly elected Donald Trump threatened severe pharmaceutical import tariffs. In September this year, GSK responded by announcing plans to invest $30bn in US R&D and manufacturing over the next five years.
Finally, the GSK share price has begun to move. Itâs up almost 18% in the past three months, though the return is only about 13% over a year. It isnât soaring, and from a personal point of view Iâm only back to roughly where I started, with reinvested dividends giving me a small paper profit.
But I can see reasons to be optimistic. The $30bn US investment plan shows GSK is serious about protecting itself from tariffs and focusing on the largest market in its business.
Income and growth potential
Its pipeline improvements are paying off. Q2 results on 29 July showed revenues of $10.6bn, beating consensus of $7.92bn. We’ll know more tomorrow (29 October) when Q3 results land.
The valuation looks attractive despite the recent bump, with a price-to-earnings ratio (P/E) of around 10.6. This also suggests the market hasnât priced in a full recovery yet.
As ever, there are risks. Tariff threats remain a drag on the share price and sentiment. GSK has a raft of new treatments, but it needs to keep them flowing to maintain investor excitement. The UK government’s attitude to big pharma is also uncertain, with squabbles over NHS drug pricing.
The dividend yield is modest. The trailing yield is only 3.7%, althought that’s forecast to be about 3.87% in 2025 and 4.1% in 2026. I think GSK is worth considering today, but only as part of a balanced portfolio with a patient, long-term view.
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Harvey Jones has positions in GSK. The Motley Fool UK has recommended GSK. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
