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GlaxoSmithKline isn’t the only high yield pharma stock I’d buy today

Royston Wild

I’ve been a big fan of GlaxoSmithKline (LSE: GSK) for a very, very long time.

Even as the pharma giant has suffered years of patent expiration problems (blockbuster asthma and COPD battler Advair, for instance), which have hammered revenues, I have remained optimistic that its world- class research and development teams would create the next generation of industry-leading drugs that would deliver titanic earnings growth many years into the future.

While exclusivity issues are set to remain a problem — GlaxoSmithKline estimates that turnover generated the US by Advair will slump 30% at constant currencies in 2018 — sales data surrounding newly-launched labels remains highly encouraging.

Sales of its shingles battler Shingrix, for example, generated sales of £110m in the US and Canada between January-March alone, and the drug has recently received the green light from regulators for GlaxoSmithKline to try and replicate this success in Europe and Japan. Meanwhile, sales of its stable of HIV drugs rose 14% at constant exchange rates in the first quarter, with new label Juluca added to GlaxoSmithKline’s formidable portfolio in just the past few months.

Clearly, GlaxoSmithKline still has a long way to go to replace the lost earnings created by massive patent losses. However, the firm’s bulging product pipeline and its illustrious development record suggests to me that the future is very bright.

Check out that yield!

While the aforementioned legacy issues may have smashed the FTSE 100 firm’s appeal as a sage pick for growth hunters, the huge amounts of cash being generated by its operations has provided some relief to income investors.

You see, thanks to its strong balance sheet GlaxoSmithKline has been able to keep the dividend locked at 80p per share for the past several years. And City analysts are forecasting that the pharma ace will keep payments within this ballpark through to the close of 2019, despite predictions of more bottom-line turbulence (a 5% profits fall in 2018 and a 5% rise next year).

As a consequence, GlaxoSmithKline rocks out with a massive 5.2% yield. This, combined with the company’s undemanding forward P/E ratio of 14.6 times, makes it a very attractive investment destination today.

A different dividend star

Another hot income prospect from the pharmaceuticals sector is Animalcare (LSE: ANCR).

This AIM-listed selection, thanks to the execution of a game-changing M&A during the past year, now boasts a massive continental footprint in the fast-growing area of medical care for companion and farm animals. Animalcare saw revenues boom 22.4% in 2017 to £83.7m and I’m confident that sales should continue growing at a stratospheric rate.

My view is shared by City brokers who subsequently expect earnings to grow 5% and 10% in 2018 and 2019, respectively, projections that also lead to predictions of further dividend growth. Thus last year’s 6.7p per share reward is anticipated to rise to 7.1p this year and to 7.2p in 2019, resulting in a jumbo 4.3% yield through to the end of next year.

A forward P/E multiple of 12.6 times also suggests Animalcare is undervalued relative to its estimated growth trajectory. I reckon the business, like GlaxoSmithKline, is a great stock to pick up today.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK owns shares of and 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.