A 4.5% FTSE 100 dividend yield I’d buy for my ISA and never sell!

Royston Wild explains why this FTSE 100 dividend stock is a top buy today.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

2019 has proved to be a great time for many of London’s listed pharmaceutical companies. I explained recently why the outgoing year has been a fruitful one for AstraZeneca shareholders. A combination of bubbly demand for safe-haven stocks and brilliant progress on the sales front has driven its share price to the stars.

The very same drivers have also underpinned gains over at GlaxoSmithKline (LSE: GSK), and its share price has risen 28% since new year trading kicked off in January. Despite this, the FTSE 100 firm still looks pretty cheap as it trades on a forward price-to-earnings ratio of just 15 times, giving it plenty of scope to punch more meaty gains in 2020.

More to come

Indeed, so strong have new product sales been in recent times that Glaxo has been encouraged to hike its full-year guidance over the past several weeks. Between July and September, sales of its newly launched labels were up 11% at constant exchange rates, prompting the Brentford business to predict flat earnings growth for the full year versus the previously forecasted drop of 3% to 5%.

Like AstraZeneca, Glaxo has thrown the kitchen sink at overhauling its product pipeline and has also had a string of testing successes and regulatory approvals in the fast-growing areas of oncology, HIV and respiratory tucked under its belt since the turn of January. Long gone, then, are the patent expirations that played havoc with profits growth earlier in the decade.

The Footsie firm isn’t quite out of the woods, though, with the cost of legacy losses on key products like Crestor, allied with the vast expense of its R&D programme, causing City analysts to forecast a 2% earnings reversal in 2020 right now. Clearly, unlike AstraZeneca, Glaxo can’t be considered a hot growth prospect just yet.

Lots to love

In my view, though, the chances of this forecast being significantly upgraded as the year progresses are strong given the rate at which sales are improving. That strong double-digit-percentage rise in revenues in the third quarter was up markedly from the 5% rise posted in the first six months of 2019, and creates a buzz as to what could be in store when full-year results are unpacked on February 5.

And it’s unlikely that Glaxo’s turnover boom this year will prove to be a flash in the pan, as healthcare spending revs up all over the globe. According to a recent report from The Business Research Company this will prompt sales of pharmaceutical drugs to rise at a compound annual growth rate of 6% through to 2022.

There’s no guarantee that Glaxo’s pipeline of more than three dozen products will create the blistering sales drivers that we’re all hoping for, such is the unpredictable and lumpy nature of drugs development. But given the company’s strong R&D record in recent times, things are looking good for the Footsie firm for the next decade. I’d happily buy it today with that undemanding earnings multiple and hot 4.5% dividend yield providing an added sweetener.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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.

More on Investing Articles

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »