Forget the best easy-access savings rate. I’d pick up a 5.1% yield with GSK shares
It’s a tough time for UK savers right now. With the best rates on easy-access savings accounts hovering around the 1.5% mark, £10,000 in cash savings will only net you around £150 in interest for the year. Uninspiring, isn’t it?
However, look to the stock market and you’ll see that there are plenty of FTSE 100 stocks that are currently offering dividend yields way higher than 1.5% at present. In fact, right now, it’s possible to pick up yields of 5% or higher from a number of well known, large-cap stocks. Here’s a look at one FTSE 100 dividend stock I’d buy for its big yield.
GlaxoSmithKline
GlaxoSmithKline(LSE: GSK) is a global healthcare company that operates through three segments: pharmaceuticals, vaccines, and consumer healthcare. The group develops and manufactures a broad range of prescription medicines and vaccines, and also develops and markets a range of wellness, oral health, nutrition, and skin health products through its consumer healthcare unit. With a market capitalisation of a huge £77bn, GSK is one of the largest stocks in the FTSE 100.
Big dividend yield
GSK is known for being a big dividend payer. For the last four years, it has paid shareholders 80p per share in dividends each year, which at the current share price of 1,560p translates to a yield of 5.1% – more than three times the best easy-access savings interest rate.
I’ll point out that GSK probably isn’t the ‘perfect’ dividend stock, as it hasn’t increased its dividend in a few years now which is a little frustrating for long-term shareholders. That said, a yield of 5.1% is not something to complain about in the current low-interest-rate environment, in my view.
Long-term growth story
Aside from the high yield, other reasons I like the look of GSK shares right now are the stock’s reasonable valuation (P/E of 13.8), the defensive nature of the business (demand for drugs and healthcare products is unlikely to drop as a result of Brexit) and the long-term growth story associated with the world’s ageing population.
You see, the global population is ageing fast as people live for longer. Here in the UK, those aged 65 and older made up 17.8% of the population in 2015. Yet by 2045, this segment of the population is expected to make up nearly 25% of the population, according to the Office for National Statistics. What’s the one key thing people have a higher demand for as they age? Healthcare products. As such, GlaxoSmithKline, as a healthcare specialist, looks well placed to benefit from this dominant structural trend over the long term.
Of course, investing in shares is riskier than putting your cash in a bank. When you buy shares, your money will fluctuate in value and that means there’s a chance you may not get back what you invested. Yet risk is related to reward, and when you consider that there’s a 5.1% yield on offer and the chance to invest in a long-term growth story, I think the risk of buying GSK shares is definitely worth considering.
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Edward Sheldon owns shares in GlaxoSmithKline. 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.
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