GlaxoSmithKline (GSK.L) may ditch a plan to return 4 billion pounds ($6.1 billion) to investors, some analysts believe, as the drugmaker prepares to set out its vision for the reshaped group and a new chairman takes the helm.
Instead, Britain's biggest drugmaker could use cash flowing in from its far-reaching asset swap deal with Novartis (NOVN.VX) to support its dividend, according to analysts at Goldman Sachs and Berenberg Bank.
GSK said last year it intended to return 4 billion pounds to shareholders in 2015 through a so-called B share scheme, following its $20 billion-plus transaction with Novartis, which was finalised two months ago.
But with the drugmaker's dividend under pressure following several years of stagnant growth, some believe it might make more sense to cancel the program.
"Momentum behind this capital return seems to have stalled," Berenberg analyst Alistair Campbell said in a note on Friday. "With the dividend commitment under pressure, we think there is now a credible possibility the company will cancel the capital return in favor of supporting the dividend."
Scrapping the cash return could cut earnings per share (EPS) forecasts by 3-4 percent. But this would be offset by renewed confidence in the dividend, which offers a fat yield of 5 percent.
While the company has promised that this year's dividend will be held at 2014's level of 80 pence a share, there are concerns about the outlook for 2016.
"Importantly, in the context of dividend yield, we believe that if GSK were to sacrifice the B share scheme, greater certainty on the dividend in 2016 and beyond might be well received by investors," Goldman Sachs said in a note this week.
A GSK spokesman said it was company policy never to comment on market speculation.
The debate comes as Chief Executive Andrew Witty prepares to detail prospects for the new-look GSK at an investor day on May 6, when it will also announce first-quarter results. The company's annual meeting a day later will see new chairman Philip Hampton take over.
GSK has sold its cancer drugs portfolio to Novartis, while at the same time boosting its consumer health business through a joint venture with the Swiss company and buying Novartis's vaccines.
This reduces GSK's reliance on risky drug development and increases its exposure to more stable consumer and vaccines operations, both of which have long-lasting products but, in the case of consumer health, lower margins.
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