Is GlaxoSmithKline the ultimate retirement share?
A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.%VIRTUAL-SkimlinksPromo%
Today, I'm going to take a look at GlaxoSmithKline, the UK's largest pharmaceutical company.
Performance enhancing drugs
GlaxoSmithKline's product range includes consumer brands such as Lucozade, Sensodyne and Nicorette, as well as its prescription drugs and vaccines. It's a classic defensive stock and has been far less volatile than the FTSE 100 over the last 5 years:
Total Return 2007 2008 2009 2010 2011 Trailing 10 yr avg.
Although GSK's trailing 10 year average total return is below that of the FTSE 100, anyone holding GSK shares from 2007 until today would have seen a total return, including reinvested dividends, of 40%, compared to 12% for the FTSE 100 total return index.
What's The Score?
To help me pinpoint suitable investments, I like to score companies on key financial metrics that highlight the characteristics I look for in a retirement share. Let's see how GlaxoSmithKline shapes up:
Item Value 5 year average financials
Criteria Comment Score
|Longevity||A new company, but a long history with some major brands.||4/5|
|Performance vs. FTSE||A strong, defensive performer.||4/5|
|Financial strength||Quite heavily geared but high profit margins and ample cash.||4/5|
|EPS growth||Inconsistent, but likely to be steady over the long term.||3/5|
|Dividend growth||Above-inflation and stable dividend growth -- ideal for retirees.||4/5|
A score of 19/25 is attractive in my view and makes GlaxoSmithKline and attractive candidate for a retirement fund portfolio -- indeed, I hold these shares in my own retirement fund.
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