GlaxoSmithKlines(LSE: GSK) shares are a tremendous opportunity for income investors, according toAdrian Frost, manager of the 7.3 billion Artemis Income fund.
Glaxo has been an income investors favourite for some time, but Frost believes that now is the time to buy, ahead of a company-wide restructuring.
Indeed, pricing pressures around the world,coupled with patent expirations have taken their toll on Glaxos sales. And after years of sluggish growth, there is a growing clamour for Glaxo to restructure its operations.
Adrian Frost believes that now Glaxos asset-swap deal with Novartis has taken place, the company will undertake an aggressive restructuring plan. The goal of the restructuring will be to unlock value from Glaxosindividual business units such as vaccines and consumer health.
Glaxos management has already kicked off a company-wide restructuring after reporting a terrible set of 2014 results. Specifically, Glaxos revenues fell 10% to 6.2bn during the fourth quarter of last yearwhile operating profit plunged 72% to 691m.
And alongside these results, Glaxos chief executive Sir Andrew Witty announced that the company was considering spinning off its HIV joint venture, ViiV Healthcare.
Sir Witty also mentioned that Glaxo was open to other deals that might help streamline the group. The ViiV Healthcare spin-off could raise up to 17bn, which is likely to be returned to investors.
Broadly speaking, Glaxos restructuring will work in favour of income investors. You see, there are a number of businesses under the Glaxo umbrella, and some these businesses are performing better than others.
For example, Glaxos consumer health division is one of the worlds largest consumer health product suppliers, producing a range of over-the-counter medicines and skin treatments. Income from this division is relatively stable and predictable. The same can be said for Glaxos vaccines unit.
However, Glaxos respiratory business is more unpredictable. Many of Glaxos troubles over the past few years can be traced to the groups respiratory business.
With this being the case, if Glaxo restructures its business to focus on its key vaccines and consumer health divisions, the companys income stream and sales growth will become more predictable.
A stable, predictable and recurring income stream is perfect for income investors. Still, Glaxo is hardly unattractive as an income play at present. The companys shares currently support a dividend yield of 5.1%, and Glaxo is planning to issue a 4bn special dividend to investors later this year.
Glaxo is set to yield a total of 11% this year, including the special dividend. If this double-digit yield isn’t enough and you’re still looking for dividend opportunities, then the Motley Fool is here to help.
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