Why I’m Optimistic About GlaxoSmithKline plc’s Future!

I’m confident of making good profits from my shares in GlaxoSmithKline plc (LON: GSK)

GlaxoSmithKline plc’s (LON: GSK) (LSE: GSK.L) results this week made me feel excited about the company’s future. Granted, its shares did not exactly surge to the top of the leader board in response to the results, but as a long term investor there was plenty for me to feel optimistic about.

One of the things that’s often overlooked about GlaxoSmithKline is its diversity. It is viewed by many investors as a pure play pharmaceutical company which is wholly dependent upon its drugs pipeline. While that is important, that’s just one part of the business and GlaxoSmithKline has a thriving consumer goods division, as well as its vaccine segment. Therefore, I like to view it as three health care businesses rolled into one, with GlaxoSmithKline offering greater diversity, in my view, than many of its health care peers.

I was pleased to see that GlaxoSmithKline is generating double-digit top line growth and expects to do so for the full-year. Alongside a major reduction in its cost base, this should have a very positive impact on the company’s earnings and I believe that GlaxoSmithKline will be able to record market-beating growth over the next couple of years. Beyond that, its pipeline of around 40 new drugs should be able to generate even more growth – particularly within the HIV division which GlaxoSmithKline was contemplating spinning off.

Some investors have expressed disappointment that GlaxoSmithKline plans on freezing dividends per share at 80p over the next couple of years. In my view, this is a sensible step to take since it is already yielding around 5.4% and if it feels that the capital which would have paid for a dividend increase can be better spent on growing the business, then as an investor that is a good thing. That’s because it should mean a faster long term growth rate which in turn could mean a faster dividend growth rate down the line.

As someone who likes to diversify and invest in defensive stocks, GlaxoSmithKline fits the bill. As mentioned, it has a diverse business model and could be seen as a relatively ‘safe’ stock if stock markets become more volatile and uncertain in the coming months. Therefore, while its shares have fallen by 3% in the last year, I’m still very optimistic about the long term potential of my stake in GlaxoSmithKline.

The author owns shares in GlaxoSmithKline at the time of writing.

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