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Should I Buy GlaxoSmithKline for My ISA?

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LONDON -- ISA season is upon us again! If you haven't yet used this year's 11,280 pound allowance for a stocks and stocks ISA, you only have a short time left before the April 5 deadline.

Remember, you don't pay any tax on share gains held within an ISA or additional income tax on dividends -- giving a significant boost to your investment returns. (For more information about ISAs, click here.)

Today, I'm going to tell you why I believe pharmaceuticals giant GlaxoSmithKline  (LSE: GSK  ) (NYSE: GSK  ) is a great choice for your stocks and shares ISA.

Ideal candidate
I often think the ideal share for an ISA is one you could tuck away and leave alone if you were going away for ten or twenty years... or more. For many investors, backing Britain's biggest and best companies should fit the bill.

GlaxoSmithKline is the FTSE 100's biggest pharmaceuticals company and, with a valuation of 74 billion pounds, is among the industry's largest groups. Glaxo's prodigious cash flows and generous dividends underscore its credentials as a core blue-chip ISA holding.

An added attraction is that Glaxo is a "defensive" stock, meaning its business is less affected than many industries by the general state of the economy -- and its shares don't swing so wildly with the ups and downs of the stock market.

More than pills
Defensive industries aren't completely immune to the state of the wider economy, however. Pharmaceutical firms are currently feeling the pinch because health budgets are under pressure in the U.S. and Europe as indebted Western countries attempt to rein in public spending.

Glaxo's diversification into higher-growth areas, notably emerging markets and consumer health care, stand it in good stead. Sales in emerging markets grew 10% during 2012 and now account for more than a quarter of Glaxo's business, while consumer-health care products account for about a fifth.

Many of Glaxo's iconic consumer brands -- such as energy drink Lucozade, the Nicorette nicotine-replacement products, and Sensodyne toothpaste -- are familiar the world over. In fact, Sensodyne became Glaxo's first billion-dollar brand in 2012.

Is the price right?
At the time of writing, Glaxo's shares are trading at 1,500 pence, which equates to 13 times forecast earnings for 2013. Back at the turn of the millennium, you would have been paying more than 30 times earnings.

In addition to a relatively cheap earnings rating, Glaxo currently offers investors a healthy prospective dividend yield of 5.2% -- attractive not only for income investors but also for investors looking to reinvest their dividends to benefit from the significant effect of compounding future capital and income.

I think Glaxo is one of a number of great dividend shares for an ISA available at the moment. If you're interested in similar shares, I recommend you help yourself to this free Motley Fool report.

You see, the blue chip in this report offers a solid 5.6% dividend yield, might be worth 850 pence compared with less than 750 pence today -- and has just been declared the Motley Fool's top ISA income stock for 2013.

Simply click here to download your copy of the free report.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 13, 2013, at 11:02 AM, wmanning wrote:

    And Warren Buffet supposedly owns a chunk of GSK. Not a bad endorsement.

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