GSK management change could see dividend policy shift
Change at the top could signal a new regime for shareholders at GlaxoSmithKline.
Chief executive Andrew Witty's planned departure may see the drug giant rethink its policy on dividends.
Glaxo is on a pace to pay out dividends this year equal to about 95pc of estimated earnings per share, according to data compiled by Bloomberg. That's the highest among the world's 10 biggest drugmakers, a group whose average payout is 57pc of earnings, the data show.
The company has said it is committed to paying ordinary dividends of 80 pence a share through 2017. That generous stance may go with Mr Witty, who said yesterday he plans to retire next March amid a broader board shake-up.
The 51-year-old chief executive "had become increasingly wedded to keeping the dividend, when in reality it looks too high given the current earnings and cash generation of the business," said Laura Foll, who helps oversee £1.5bn of assets, including Glaxo shares, at Henderson Global Investors.
The lion's share of pharmaceutical stock returns in recent years has stemmed from dividends. Glaxo, which offered shareholder returns of 61 percent in the past five years, would've returned only about a third of that without its dividend, according to Bloomberg data.
Glaxo is starting to look for a new leader, both inside and outside the company. That person will need to decide what he or she "can do better with the cash flow that is used for that dividend - reinvest it somewhere else and improve the growth prospects," said Joe Walters, manager of the Royal London UK Income With Growth Trust, a Glaxo stockholder. (Bloomberg)