There are things to love and loathe about most companies. Today, I'm going to tell you about three things to love about FTSE 100 (UKX) pharma giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US).
I'll also be asking whether these positive factors make Glaxo a good investment today.
If you look at a chart for Glaxo since the turn of the millennium, you'll see that the share price has gone nowhere. In fact, the shares have fallen from over £20 in 2000 to £14 today. Yet, at the same time, Glaxo's business has progressed very nicely, growing revenues and profits over the period.
How can a company's share price decline when its business has actually prospered? The answer is that Glaxo's shares have 'de-rated' over the past 13 years. In 2000, investors were paying an eye-watering 30 times earnings; today, you can buy the shares at a far more reasonable 13 times earnings.
Glaxo's growing revenues and profits have enabled the company to build a strong record of annual dividend increases, as the table below shows.
Dividend per share (p)
If Glaxo's price-to-earnings (P/E) ratio is hugely more attractive today than back in 2000, so is the dividend yield: the yield at the turn of the millennium was just 2%; today, it's a juicy 5.3%.
Despite the long-term slow decline in the share price as the stock has de-rated to a reasonable P/E, Glaxo's shares have been less volatile than the market during periods of stress.
Big pharma is a 'defensive' sector, meaning it is less affected by economic conditions than 'cyclical' sectors, such as housebuilders. Thus, in the 2007-09 bear market, while the FTSE 100 fell 48% -- and cyclical companies considerably further - Glaxo declined a relatively modest 20%.
A good investment?
Glaxo's shares have underperformed the FTSE 100 over the past six months -- falling 5% versus a 10% rise in the index -- as many investors have become more optimistic and backed cyclical shares for a recovery.
As I mentioned earlier, Glaxo's P/E and dividend yield are currently at historically attractive levels. If I were in the market for a sleep-well-at-night, defensive income share, the UK's premier pharma company would certainly be on my list of stocks to consider.
You may be interested to know that Glaxo is a top holding of one investor with a proven track record of buying great dividend shares. Renowned City fund manager Neil Woodford has thrashed the FTSE 100 over the past five, 10 and 15 years with his £20 billion funds.
You can learn all about this master investor's methods -- and eight of his current favourite blue chips -- in a free and exclusive Motley Fool report. This report is available to private investors for a limited time only, but you can download it right now: simply click here.