The GlaxoSmithKline (LSE: GSK) share price has risen by nearly 20% over the last 12 months. Shareholders will probably be hoping this continues. Despite this year’s gains, the Glaxo share price has lagged behind FTSE 100 rival AstraZeneca by 85% over the last five years.
Dividends have boosted returns
One comfort for Glaxo shareholders has been the continued stream of dividend cash. Shareholders have received a dividend of 80p per share every year since 2014.
Over the last five years, this payout has increased the total return provided by Glaxo shares from a measly 5% to a more respectable 30%. That means an investment of £3,000 in 2016 would be worth around £3,900 today.
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That’s not a disaster, but it’s still a big disappointment compared to AstraZeneca. This rival business has turned £3,000 into £6,400 over the last five years, including dividends.
Are GSK shares about to start rising?
I think Glaxo’s share price performance could soon start to improve.
Under pressure from investors, chief executive Emma Walmsley has committed to a series of changes aimed at improving performance. The biggest of these is that Glaxo will be split into two companies in 2022.
When the split is complete, this sprawling group will be separated into a pharmaceuticals business and a consumer healthcare company.
The logic behind this split is that the pharmaceutical business will be smaller, more focused, and have less debt. This is expected to improve performance and free the business up to invest in new medicines.
In contrast, the consumer healthcare business — which owns brands such as Sensodyne and Panadol — is seen as a cash cow that should continue to deliver steady results. Separating this operation will allow it to be run more efficiently, with a greater focus on shareholder returns.
What about dividends?
Anyone who owns Glaxo shares before the split will keep these shares and be given an equivalent number of shares in the new consumer healthcare business. This will mean that each shareholder will own the same assets as before the split.
What will change is Glaxo’s dividend policy. Walmsley has confirmed that the total payout for 2021 is expected to remain at 80p. But from 2022, the dividend will fall sharply.
GSK and the consumer business are expected to pay a combined dividend of 55p in 2022. Based on the share price today, this will cut the total dividend yield from 5% to just 3.4%.
There’s even less clarity about 2023. The GSK pharma business is expected to pay a dividend of 45p per share. We don’t yet know what the consumer business will pay.
GSK: buy, sell, or hold?
I remain positive about the long-term prospects for GlaxoSmithKline. Although this group does have a history of inconsistent performance, I think that splitting the business is likely to improve the performance of both halves.
I’d be comfortable buying Glaxo shares for my portfolio today. If I already owned this stock, I certainly wouldn’t sell at this time.
