3 Reasons to Buy GlaxoSmithKline


LONDON -- Despite the company's declining sales, I am still very positive about the investment opportunity that GlaxoSmithKline has to offer. Here's why:

Strong dividend yield
GlaxoSmithKline has traditionally produced a strong and growing dividend for investors. Presenting a 5% yield, GSK's dividend is above the pharmaceutical sector standard of 4.8%, and the firm's illustrious payout is currently proving very popular in today's uncertain market.

In addition to its yield appeal, GSK has maintained a record of repaying cash to its shareholders with just under 2.5 billion pounds returned through share buybacks during 2012.

Furthermore, when the 5% dividend yield and possible equity appreciation GSK has to offer are compared to bond investments, I believe GSK to be an appealing long-term investment with a strong case to buy and hold.

Commitment to bring back growth
In response to dramatic European pharmaceutical budget cuts during this time of austerity, in which GSK's sales fell by 3% in the fourth quarter, chief executive Sir Andrew Witty has promised to turn things around.

GSK intends on slashing costs in its faltering European division in the hope that investors will be remunerated with a reoccurrence of growth in 2013.

Sir Andrew intends on implementing a new program to reshuffle European processes, product manufacturing, and R&D with the aim of saving at least 1 billion pounds annually by 2016.

GSK has also announced a strategic review of its Lucozade and Ribena brands, spurring immediate interest from investment banks interested in acquiring the products that could be worth up to 750 million pounds.

I believe that the response from management to deal with growth issues and to seek a different strategic approach is a great sign for the future of the company (and its share price).

Too often, large corporations are hampered by management that is stubborn, dismissive and fixed in company tradition. To me, GSK's actions indicate a forward-thinking management with a clear focus on producing growth for its investors.

Increasing focus on emerging markets
Emerging markets are fundamental to GSK's growth plans, a step that I believe is very positive amid the sales slowdown in Europe.

It seems that every few weeks there is news of GSK's extensive movements in emerging markets. Indeed, just last month, the group negotiated raising its stake in an Indian consumer health care subsidiary from 43% to 73% -- a significant vote of confidence for India's rapidly expanding health care market.

In fact, this Indian subsidiary has seen annual growth of 19% over the past five years, and is producing sales of $500 million through brands such as Horlicks and VitaHealth.

This month, GSK stated that its emerging-market sales increased 10% during 2012 and confirmed such revenues now account for 26% of its total top line.

Looking at these growth figures compared to falling European sales, it is easy to see the extensive opportunity and development potential that emerging markets pose for GSK.

The aim to increase exposure in these faster-growing markets will not only create growth but also diversity and stability, which has already become apparent through recent emerging-markets sales -- propping up disappointing results in Europe.

This growth potential and stability further increases my bullishness on GSK's future share price.

Now that you have read the investment potential of GSK you may be interested in seeking further shares to diversify your portfolio.

Indeed, this particular share has been named "The Motley Fool's Top Growth Stock For 2013" for its incredible expansion potential and undervalued share price.

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The article 3 Reasons to Buy GlaxoSmithKline originally appeared on Fool.com.

Alastair Millar has no position in any stocks mentioned. The Motley Fool recommends GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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