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ISA alert! I think GlaxoSmithKline is a great buy for both income and growth investing

The Motley Fool logo The Motley Fool 11/10/2020 Jonathan Smith
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As an ISA investor, I’m always on the lookout for good stocks to buy. The Stocks and Shares ISA allowance enables me to receive dividends gross of tax. It also enables me to pay no capital gains tax if I sell a stock for a profit within the ISA wrapper. This makes it a great tool for both income and growth investing. 

Some investors think that income or growth investing are mutually exclusive. This really isn’t the case. You can buy a stock that pays out a dividend, but also has growth prospects. It’s true that some high-growth, early-stage firms may not pay a dividend to help retain profits within the business. Yet there are still plenty of growing firms that do. 

Growth investing prospects

GlaxoSmithKline (LSE:GSK) is one of the largest pharmaceutical businesses in the world. It was formed by a merger of two companies in 2000, so isn’t tagged as an early-stage growth business. Yet due to the search for a vaccine, even a mature company like GSK has large share price appreciation potential.

This particularly appeals to growth investors. Since April, GSK has teamed up with Sanofi in a vaccine push. Even though it looks unlikely that they’ll be the first to develop a vaccine, this doesn’t render it pointless. The partnership has arguably the largest network to distribute such a vaccine around the world. Only last week, GSK made a commitment to supply 200m doses to COVAX. This is a group of governments, health groups and others formed to help with the response to the virus. 

The bottom line is that it looks likely the GSK/Sanofi vaccine will be a large-scale product, with huge demand (assuming it works). From a financial point of view, this could be very profitable. As a result, investors would likely see growth in the share price of GSK into the medium term. New developments of this scale don’t happen that often, and so the move could be significant.

Video: US equity market has room to grow, but more bullish on non-US equities: Fidelity (CNBC)


Income prospects

Aside from growth investing, income investors also find value in buying GSK. In a recent Q3 trading update, the dividend of 19p per share was flat compared to last year. This doesn’t surprise me, given that the quarterly results were mixed, with the highlight being an increase in operating profit to £1.9bn. The flat dividend versus last year should actually give comfort to income investors. The opportunity to cut the dividend going into the year-end is one companies have often used in the past, to boost balance sheets.

The current dividend yield sits at 5.72%. This is very attractive when comparing it to the FTSE 100 average of 3.4%. When compared to the Bank of England base rate of 0.1%, it looks even more appealing. Having already considered the growth potential above, income investors can also potentially look forward to a profit aside from the dividend.

Overall, I feel GSK is a solid buy for income and growth investing. At present, I feel it offers the best of both worlds, given the situation we find ourselves in with the virus.

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jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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