So, what is the future of pharma? With the patents ofso manyblockbuster drugs expiring, are pharmaceutical companies destined to decline? Although big pharma is a mature industry, the recent discovery of a potentialstem cell cure for diabetesis an example of the type of discovery thatstill lies ahead of us. Thats why I think the drug companies areworthwhile dividend investments.
GSK has recently been tarnished by the bribery scandal in China, and its share price has beensliding recently, as profits have fallen behind expectations.
Yet this is still one of the most innovative healthcare companies in the world, withone of the strongest drug pipelines in the industry. This means that earnings are likely to recover over the next few years.
Yet this company is reasonably priced, as the fundamentals show. The 2014 P/E ratio is 14.7, with a dividend yield of 5.8%, and the 2015 P/E ratio is 12.8, with a dividend yield of 6.0%.
So this is a company thatis growing earnings, and also has a high and rising dividend yield. And the recent fall in the share price has created a buying opportunity.
AstraZeneca was, for a long time, the most unloved of the pharma companies, because of the recent patent expiry of so many of its drugs. But now, post-patent cliff, with profitability recovering,its share price has rebounded strongly.
However, the rise in the share price means that the firm is not as cheap as it was. The 2014 P/E ratio is16.5, with a dividend yield of 3.9%, and the 2015 P/E ratio is 16.7, with a dividend yield of 4.0%.
The share price has pushed higher because of Pfizers recent takeover bid for this company. I cant say whether this acquisition will take place or not, but what the speculation has done is make AstraZeneca comparatively expensive.
Foolish bottom line
These companies are worthwhile additions to your high-yield portfolio. Thats why Neil Woodford has recently bought into both businesses. However, the recent fall in GlaxoSmithKlines share price, concomitant with the rise in AstraZenecas share price, means that AZ is now really a bet on a takeover which may or may not happen, whereas GSK has a strong likelihood of growing earnings organically over the next few years.
Thus of these two firms, my view is that GlaxoSmithKline is now the better dividend investment.
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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.