There’s no doubt that GlaxoSmithKline’s (LSE: GSK) (NYSE: GSK.US) future is uncertain. After being accused of using bribes to sell its treatments within several markets, the biotechnology giant is now under investigation by the Serious Fraud Office.
Unfortunately, if the SFO decides to make an example of Glaxo, the company could be facing hefty fines. If serious enough, these fines could force the company into an aggressive cost-cutting programme, or even worse, management could be forced to reduce the dividend payout to save cash.
However, it’s unlikely that the SFO will force Glaxo to pay a hefty fine.
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Desperate need
There’s no denying that some of Glaxo’s treatments are in demand. The company did not get where it is today by producing and selling placebos. As a result, governments around the world depend on Glaxo’s research and development abilities.
So, it’s unlikely that the SFO will levy a fine on Glaxo that will force the company to reducing staff numbers and cut back on R&D. What’s more, with over 40 key treatments already under development, governments around the world will not want to slow down the already lengthy process of getting drugs to market, which could potentially cost lives.
Key treatment
One of Glaxo’s most desired treatments right now is a potential vaccine for the deadly Ebola virus. Ebola is currently sweeping across West Africa and the World Health Organisation has declared an international emergency due to the spread of the disease.
Glaxo is just one of the many companies testing a cure for Ebola. The company has already manufactured 400 doses, enough to conduct a clinical trial, but needs to prove the cure works before increasing production. Glaxo is planning to test the vaccine later this year. The company has told reporters that it is hoping to be able to report meaningful results by the end of the year.
Essential company
Glaxo’s strong pipeline of treatments under development make the company the perfect long term ‘buy and forget’ share. Indeed, as the company plays such an integral part in keeping the world healthy, it is bound to be around for a long time to come.
Further, healthcare is not a cyclical industry, so while some economies may be struggling to recover from economic crises’, Glaxo’s shares should remain robust.
Attractive qualities
And the great thing is, right now Glaxo is selling at an extremely attractive valuation. Specifically, the company supports a 5.5% dividend yield at present and trades at a forward P/E of 14.8. City analysts expect the company’s dividend yield to hit 5.8% next year.
Every portfolio needs a selection of shares with defensive qualities like those of Glaxo. Indeed, a selection of defensive shares with attractive dividend yields gives your portfolio a solid backbone, allowing you to sleep soundly at night.
