On Monday, and again earlier today, I argued that the FTSE 100 has been a serial underperformer for decades. Furthermore, within the FTSE 100 hide shares that have produced stellar returns, while others have left investors nursing horrible losses.
The FTSE 100 is a mixed bag
At one end of the FTSE 100 lies Lloyds Banking Group (LSE: LLOY), whose shares have produced nothing but losses over any reasonable timeframe. Oddly, whatever medium-term timeframe you choose, the Lloyds share price seems to have halved. Ouch.
At the other end of this scale lie booming businesses whose share prices have duly followed suit, rising above and beyond the wider market. For example, over the past five years, 18 FTSE 100 shares have doubled or better. Remarkably, the leader has almost quintupled in value over the past half-decade. Wow.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Mixed value in the FTSE 100
However, I’m not going to talk about the FTSE 100’s star performers, because I find their share prices simply too rich for my blood. Instead, I’m going to review a modest performer – one that churns out juicy cash dividends, while offering the prospect of future capital growth.
GlaxoSmithKline is my favourite ‘safe’ share
GlaxoSmithKline (LSE: GSK) may look like a boring, safe business – and it is. But there are also exciting projects waiting in the wings that could propel its share price significantly higher.
Long-term shareholders – and I’ve owned GSK shares pretty much continually since the early 90s – know that GSK shares won’t shoot the lights out. They haven’t doubled over the past five years, like those of long-term British rival AstraZeneca.
GSK’s solid FTSE 100 financials
GSK’s main attraction right now is its generous dividend, which is rock-steady. Check out GSK’s yearly cash dividends since 2015:
2019: 80p
2018: 80p
2017: 80p
2016: 80p
2015: 100p (includes 20p special dividend)
Thus, I’m willing to bet any sum that this FTSE 100 dividend won’t be less than 80p for 2020!
At their current price of 1,616p, GSK shares offer a dividend yield a whisker short of 5% (at £16, the yield would be exactly 5%). That’s seriously attractive in a world of near-zero or even negative interest rates from government and corporate bonds.
What’s more, GSK’s 80p yearly dividend is covered 1.34 times by recent earnings of 107p per share. Also, I suspect a higher coverage ratio will emerge as GSK’s ongoing earnings start to grow again. Likewise, on a price-to-earnings ratio of 15.1 (13 on a forward basis), GSK shares are cheap by historical standards.
GSK’s best may be yet to come
Over the past five years, GSK shares have risen by 18.3%. That’s a vast improvement on the FTSE 100’s overall performance of nearly -20% since July 2015. Plus GSK’s dividend yield has easily beaten the FTSE 100’s over this period.
However, GSK is so different today under change-leader and CEO Emma Walmsley that it may as well rename itself. As a world-leading vaccine producer, it’s at the forefront of the fight against the coronavirus. Likewise, its growing pipeline of 52 new clinical entities, plus huge spending on research and development (£4.6bn last year), will fuel a brighter future.
To sum up, this FTSE 100 giant (valued at £81.5bn) combines a defensive business model and diversified (and rising) revenues with a rock-solid balance sheet, modest net debt, high margins and strong cash flow. What’s not to like? That’s why I’d buy more GSK shares today.
