Wednesday, February 17, 2021

GSK stock: It Might Not Be A Great Idea To Buy GlaxoSmithKline plc (LON:GSK) For Its Next Dividend

 Feb. 17, 2021

Here is the article. 

My notes:

  1. Feb. 18 - last day to purchase GSK in order to receive the dividend. Pay date is on April 8. 
  2. 6.3% trailing yield 

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that GlaxoSmithKline plc (LON:GSK) is about to go ex-dividend in just three days. You can purchase shares before the 18th of February in order to receive the dividend, which the company will pay on the 8th of April.

GlaxoSmithKline's upcoming dividend is UK£0.23 a share, following on from the last 12 months, when the company distributed a total of UK£0.80 per share to shareholders. Based on the last year's worth of payments, GlaxoSmithKline has a trailing yield of 6.3% on the current stock price of £12.78. If you buy this business for its dividend, you should have an idea of whether GlaxoSmithKline's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. GlaxoSmithKline paid out 69% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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