Before Covid-19 sent stock markets plunging in spring 2020, GlaxoSmithKline (LSE: GSK) shares were riding high. At its pre-coronavirus peak in early 2020, the GSK share price hit a high of 1,857p on 24 January 2020. Oh boy, as a long-term GSK shareholder, I wish I’d sold back then.
The fall and rise of the GSK share price
As Covid-19 ravaged the globe, global stock markets went into meltdown. In the US and UK, major market indexes plunged by around 35%, before recovering after ‘Meltdown Monday’ (23 March 2020). The GSK share price duly followed suit, diving in spring 2020 before ending 2020 at 1,342p. But it still had further to fall.
At its 2021 low, the GSK share price hit rock-bottom on 26 February, closing at 1,190.8p. At this point, I was kicking myself for not selling 13 months earlier. But, as a veteran value investor, I could see hidden value in this beaten-down stock. Hence, I took a deep breath, mustered my courage, and kept buying GlaxoSmithKline stock.
Fortunately for me, the GSK share price has bounced back hard since then. It’s up 3.5% over five days, 15.3% over one month, and 6.8% in 2022. It’s also jumped 24% over six months and 32.7% over 12 months. This marks one of the strongest runs for this stock in years.
I’m almost out of GSK stock
Earlier today, the GSK share price peaked at 1,718.2p, just below its 52-week high of 1,737p on 16 January this year. After the shares leapt past £17, my wife sold a huge chunk of stock. In fact, I’m fairly sure that — for the very first time since 1989 — she no longer owns any GlaxoSmithKline shares.
This feels like the end of an era for my family, because GlaxoSmithKline has been our family’s biggest individual shareholding for decades. That’s largely because my wife worked at the pharma giant from late 1989 to spring 2021. In 31.5 years at the firm, she amassed a hefty holding through various employee share schemes. But after being made redundant and early-retired a year ago, she has finally offloaded her stake in her ex-employer.
I have followed her lead and, as a result, have a tiny ‘rump’ holding — remnants of ancient reinvested dividends, held in old-school paper certificates. Frankly, I can hardly be bothered to unearth these dusty old documents, so I remain a GlaxoSmithKline shareholder.
Why we’re exiting GSK
At the current share price of 1,714.4p, GlaxoSmithKline has a market value of £87bn, making it a FTSE 100 super-heavyweight. The shares trade on a price-to-earnings ratio of 19.8 and an earnings yield of 5.1%. This barely covered the 80p-a-year dividend, which equates to a dividend yield of below 4.7% a year.
One reason for us selling the stock is that its market-beating dividend yield is about to fall. This summer, GSK Consumer Healthcare will be hived off as a separate listed company called Haleon. After this, cuts to the dividend in 2022-24 will make GlaxoSmithKline a less attractive stock for us as income-seeking investors. Also, I’m not convinced that current CEO Dame Emma Walmsley is the best person to run ‘New GSK’, the biopharma business. That’s why we’ve sold out into the GSK share price’s latest strength!
