Everybody likesa bit of novelty, including investors. Its all too easy to overlook the old reliables, the ones that have delivered wealth year after year, especially whenshare price performancegets a little patchy. So have you forgotten just how good these two portfolio stalwarts really are?
Pipeline flows
Nobodyexpects pharmaceuticals giant GlaxoSmithKline (LSE: GSK) to be a share price growth machine, but recent performance has still been patchy. The share price is down12% onthree years ago, due to theChinese bribery scandal, cliff-edge patents and drying drug pipelines. The last two are particularly concerning because Glaxo needs to keep the cash flowing to maintainits generous dividends.
This weeks Q1 results showed group sales up 8% to 6.2bn andcore earnings per share (EPS) alsoup8% to 19.8p. Glaxo has done well to wean itself off its dependency on lucrative respiratory treatment Advair/Seretide, which has seensales fall30% since 2013. Growth of new products in its respiratory portfolio offset about 70% of that decline in the first quarter, with signs of progress in other coretherapy areas ofHIV, oncology, immuno-inflammation and rare diseases.
Dividend safety remains a concern but management is standing by its plans topay an annual ordinary dividend of 80p in2016 and 2017. Its Q1interim dividend was19p per share, in line with Q1 2015. The current yield is a generous5.4% and although cover looks thin at 0.9 Im reassured by optimistic EPS growth forecasts of 14% this yearand 5% in2017.With new product salesgrowing fast to make up20% of total pharmaceutical sales in Q1, the dividend looks more robustthan it did. The share price is up7% in the last month as investors realise that Glaxo is too good to be forgotten.
Springtime for Vodafone
NobodyexpectsVodafone Group (LSE: VOD) to be a share price growth machine either, but its still up 30% over five years. Management has done well to keep the momentum going given wider economic troubles in coreEuropean markets such as Italy and Spain (where sky-high unemployment has impoverished theyouth market), and itscash-hungry 20bn Project Spring network improvement programme. Fastergrowth in Turkey, South Africa and India has offset some of its European troubles, vindicating its global diversification, while Project Spring is almost complete.
Group organic service revenues have now grown forsix consecutive quarters and its planned move into quad-playmobile, broadband, cable TV and fixed line services should provide a new growth opportunity.Chief executive Vittorio Colao has promised a small set-top box withrapid switching of channels and menus. But this is a competitive area, with BT, EE, SKY, TalkTalkand Virgin Media already joiningbattle.
Vodafone now yields 5% with cover of just 0.5. This costs itaround 3bn a year and dividend progression is likely to be limited. EPSare forecastto drop 11% this calendar year but thereafter things look more promising, with forecast growth of 23% in 2017 and 29% in 2018. If correct, the dividends should continue to follow, reminding investors why they bought Vodafone in the first place.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Sky. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
