Throughout August, financial stocks have been among the most-bought passive income picks — topped by the ever-popular Legal & General — on popular ISA investment platforms.
Some investors might be surprised to see GSK (LSE: GSK) joining them in the top 10 a couple of times during the month. But not me, and I want to explain why I think those ISA investors could be right on the money.
Share price rise
GSK shares have had a strong 12 months, gaining 27%. That means 250 of them bought at the time of writing would cost £4,705 (plus charges and stamp duty.) A year ago, the same shares would have cost only £3,673. But I still find the price attractive.
We’re looking at a forward dividend of 3.6% for the current year. I doubt that’s likely to bring stars to the eyes of many investors looking for high yields. But I believe it could be a mistake to write GSK off from the list of long-term passive income candidates.
Dividends have been fairly flat for a while. And management rebased the annual payout after the 2022 demerger of GSK’s consumer healthcare business to form Haleon. But I see the split as a very good decision. And to me, it looks like it’s left us with a leaner and fitter pharmaceuticals developer — with significantly better cash-cow prospects.
Future expenditure
I did record one note of caution when I read July’s second-quarter update. It’s in something the boss said…
To fund investment in the late-stage portfolio and R&D, we are starting a 3-year cost savings programme to simplify the organisation and to reallocate capital and resources. Savings will primarily be reinvested, with some used to improve margins and profitability in the dolutegravir patent expiry period.
CEO Luke Miels, 28 July 2026
So, profit pressure from a drug patent expiry, and cost-savings targets. Will that put pressure on future dividend plans? It’s the kind of thing that can do exactly that. And R&D costs and revenues in the pharmaceuticals business can be cyclical — developing a drug can take years, and they have a finite patent lifespan.
That’s one of the reasons I’d say the sector is really most attractive to very long-term investors.
Dividend policy
Despite that, I see no sign that GSK plans to change its dividend policy, outlined with 2025 full-year results. At the time, the company said: “Dividends remain an essential component of total shareholder return and GSK recognises the importance of dividends to shareholders.“
To that end, the report told us “a progressive dividend policy will be implemented guided by a 40 to 60 per cent payout ratio through the investment cycle.“
Analysts seem to think it will pay off. They forecast dividends to rise by 18.7% between 2025 and 2028. And that’s the kind of growth that could compound very nicely over the long term.
On that basis, I rate GSK as a stock that long-term passive income investors should consider. Mind you, there are some great alternatives competing for our hard-earned cash out there.
What income stock do we like better than GSK right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at an income share we think is worth your time.
Alan Oscroft does not hold any positions in the companies mentioned.
Throughout August, financial stocks have been among the most-bought passive income picks — topped by the ever-popular Legal & General — on popular ISA investment platforms.
Some investors might be surprised to see GSK (LSE: GSK) joining them in the top 10 a couple of times during the month. But not me, and I want to explain why I think those ISA investors could be right on the money.
Share price rise
GSK shares have had a strong 12 months, gaining 27%. That means 250 of them bought at the time of writing would cost £4,705 (plus charges and stamp duty.) A year ago, the same shares would have cost only £3,673. But I still find the price attractive.
We’re looking at a forward dividend of 3.6% for the current year. I doubt that’s likely to bring stars to the eyes of many investors looking for high yields. But I believe it could be a mistake to write GSK off from the list of long-term passive income candidates.
Dividends have been fairly flat for a while. And management rebased the annual payout after the 2022 demerger of GSK’s consumer healthcare business to form Haleon. But I see the split as a very good decision. And to me, it looks like it’s left us with a leaner and fitter pharmaceuticals developer — with significantly better cash-cow prospects.
Future expenditure
I did record one note of caution when I read July’s second-quarter update. It’s in something the boss said…
To fund investment in the late-stage portfolio and R&D, we are starting a 3-year cost savings programme to simplify the organisation and to reallocate capital and resources. Savings will primarily be reinvested, with some used to improve margins and profitability in the dolutegravir patent expiry period.
CEO Luke Miels, 28 July 2026
So, profit pressure from a drug patent expiry, and cost-savings targets. Will that put pressure on future dividend plans? It’s the kind of thing that can do exactly that. And R&D costs and revenues in the pharmaceuticals business can be cyclical — developing a drug can take years, and they have a finite patent lifespan.
That’s one of the reasons I’d say the sector is really most attractive to very long-term investors.
Dividend policy
Despite that, I see no sign that GSK plans to change its dividend policy, outlined with 2025 full-year results. At the time, the company said: “Dividends remain an essential component of total shareholder return and GSK recognises the importance of dividends to shareholders.“
To that end, the report told us “a progressive dividend policy will be implemented guided by a 40 to 60 per cent payout ratio through the investment cycle.“
Analysts seem to think it will pay off. They forecast dividends to rise by 18.7% between 2025 and 2028. And that’s the kind of growth that could compound very nicely over the long term.
On that basis, I rate GSK as a stock that long-term passive income investors should consider. Mind you, there are some great alternatives competing for our hard-earned cash out there.
What income stock do we like better than GSK right now?
One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.
And the best bit is that you can see if for yourself, right now, absolutely free of charge!
No jargon. No hard sell. Just a clear look at an income share we think is worth your time.
Alan Oscroft does not hold any positions in the companies mentioned.
