The GSK (LSE: GSK) share price hasn’t exactly blown the lights out since it separated from Haleon in July 2022, but it’s slowly starting to shine.
The FTSE 100 pharmaceutical company’s stock has climbed 12.21% in the past six months, and I’d like to buy it before it climbs even higher.
Now could be a good entry point. Investors remain torn over whether the global economy is heading for a recession, or set to recover. I’ve no idea either way, but I do know this. The next bull market will come at some point. Maybe this year, maybe next. Nobody can say for sure, but it will come, given time.
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I’ll buy ahead of the recovery
I’d much rather buy GSK when investors are downbeat, than when they’re throwing money at shares. At that point, this stock is likely to be a lot more expensive.
Healthcare companies have less to gain from a bull run than firms in more cyclical FTSE 100 sectors. Yet I still think the GSK share price will benefit from a rebound in wider sentiment, because it’s returning to growth after a difficult decade.
GSK enjoyed a strong 2022, with full-year sales jumping 19% to £29.3bn. Total continuing operating margins rose to 21.9%, as the Haleon demerger detached lower-margin products.
Full-year free cash flow of £3.3bn should help fund steady growth in the GSK dividend too. Today’s 2.9% yield is below the FTSE 100 average of 3.5%. That’s barely half the 6% yield investors had come to expect from GSK’s former incarnation, GlaxoSmithKline.
Yet it’s heading in the right direction. The dividend is covered 3.2 times by earnings, giving scope for progression. Analysts anticipate a higher yield of 3.7% next year, with dividend cover still robust at 2.6. There should be more to come, assuming cash flows continue to grow.
There may be income ahead
Management predicts that adjusted operating profit ahead will rise 10% to 12% this year. CEO Emma Walmsley has put in the hard yards building up GSK’s its pipeline, and it now has 69 vaccines and speciality medicines, with 18 in phase III/registration. That bodes well, although the approvals process is tortuous with no guarantee of success.
Walmsley froze the GlaxoSmithKline dividend per share at 80p for what felt like forever, in order to divert cash into that pipeline. Now it looks like she’s tearing off the shackles. The 2022 dividend was 44p per share, but that’s set to hit 56.3p in 2023.
Of course, no dividend is guaranteed. Another danger is that more pro-growth FTSE 100 shares will rise at a faster pace when the bull market does kick in. Walmsley says GSK will be “in a strong position to deliver growth from 2026 onwards”. Those who want growth today may have to look elsewhere. I’m happy to wait, though.
I like to buy FTSE 100 dividend stocks when they’re cheap and out of favour, with the aim of holding them for at least a decade and ideally longer. Today, GSK trades at just 10.7 times earnings, which looks good value to me. When I have the cash, I’ll be adding it to my portfolio.
With luck, that will before that bull run arrives, rather than afterwards
