GSK expected to can capital return plan amid stagnant growth

LONDON (ShareCast) - GlaxoSmithKline (Other OTC: GLAXF - news) may throw out a plan to return £4bn to shareholders amid an overhaul of the drugmaker and a new chairman, analysts have said. Goldman Sachs (NYSE: GS-PB - news) and Berenberg Bank believe GSK could instead use cash flowing from its asset swap deal with Novartis (Xetra: 904278 - news) to support its dividend.

Last year GSK said it planned to return £4bn to investors in 2015 through its B share scheme after its transaction with Novartis, worth more than $20bn.

However, some analysts reckon it would be better to scrap the cash return as the drugmaker's dividend is under pressure following several years of stagnant growth.

"Momentum behind this capital return seems to have stalled," Berenberg analyst Alistair Campbell said in a note on Friday. "With the dividend commitment under pressure, we think there is now a credible possibility the company will cancel the capital return in favour of supporting the dividend." Ditching the plan for returning money to investors, could cut earnings per share (EPS) forecasts by 3-4% but would be offset by renewed confidence in the dividend, which offers a fat yield of 5%.

The group has vowed that this year's dividend will be held at 2014's level of 80p a share, although there are worries about the outlook for 2016.

"Importantly, in the context of dividend yield, we believe that if GSK were to sacrifice the B share scheme, greater certainty on the dividend in 2016 and beyond might be well received by investors," Goldman Sachs said in a note this week.

GSK sold its cancer drugs portfolio to Novartis, while at the same time buying the Swiss company's vaccines to expand its consumer health unit. The deal was finalised two months ago.