GlaxoSmithKline (LSE: GSK) is a very popular stock among UK investors. Along with other well-known FTSE 100 names, such as Lloyds Bank, BP, and Royal Dutch Shell, the pharmaceutical giant can be found within a lot of private investor portfolios.
Have GSK shares been a good investment over the last five years though? Let’s take a look at the stock’s five-year return.
GSK has smashed the FTSE 100
On 18 December 2014, GSK shares traded between 1,316p and 1,361p. Had you paid the average of these two prices and picked up some shares at 1,339p, an investment of £1,000 would have got you 74 shares (the cost would have been £991 plus trading commissions).
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Now, over the last five years, Glaxo shares have had their ups and downs. So, had you purchased five years ago, there would have been a few occasions where you were sitting on unrealised capital losses. For example, in September 2015, the stock fell to near 1,200p.
Today, however, GSK’s share price stands at 1,796p meaning those 74 shares would now be worth around £1,329. That equates to a capital gain of around 34% (or 6.1% on an annualised basis) which is certainly not a bad result.
By contrast, the FTSE 100 has produced a capital gain of approximately 18% (3.3% per year) over that time period. So, from a capital gain perspective, GSK shares have easily beaten the market.
Dividends have turbocharged returns
Of course, when you add dividends into the equation, GSK’s returns have been much higher. Glaxo has paid a large dividend over the last five years and this has had a powerful impact on investor returns.
Looking at GSK’s dividend history, had you purchased the stock on 18 December 2014, you would have picked up dividends of 382p per share so far. As such, a holding of 74 shares would have generated dividends of £283.
If we add this figure to the value of the shares (which assumes you didn’t reinvest your dividends), the total comes to £1,612.
So, overall, had you invested £1,000 in GSK shares five years ago, your money would now be worth £1,612 (not counting trading commissions). That equates to a total gain of 62.7% over five years or 10.2% on an annualised basis. I see that as a pretty decent return – if you earn 10%+ on your money every year, you’ll become wealthy pretty quickly.
Two key takeaways
To my mind, there are a couple of key takeaways from this GSK analysis.
Firstly, rewards come to those who are patient. GSK shares have had their ups and downs over the last five years. Those who have stuck it out have made good money.
Secondly, dividends really can have a huge impact on stock market investment returns. Excluding dividends, GSK shares returned just over 6% per year. However, when you include dividends, the stock generated a return of more than 10% per year, which is an excellent return.
All too often, investors ignore dividends when investing in shares because they see them as negligible. Dividends shouldn’t be underestimated though. Over time, they can be an extremely powerful wealth creation tool.
