Some of my best stocks to buy now can make me a passive income through dividend payments. One pick I like right now is GlaxoSmithKline (LSE:GSK). Here’s why I would add the shares to my holdings to make a passive income.
Pharma giant
GSK is one of the biggest pharmaceutical firms in the world, headquartered in the UK. It discovers, develops, manufactures, and sells medicines, vaccines, and general consumer healthcare products all around the world.
As I write, GSK shares are trading for 1,636p per share. At this time last year, shares were trading for 1,372p which is a 17% return over a 12-month period. The shares actually dipped in the summer last year to as low as 1,380p. I believe this was due to the announcement that GSK would be spinning off its consumer healthcare business. There was also to be a cut in dividends by GSK from 80p per share to 55p per share. This new GSK would offer a dividend of 45p per share from 2023.
Why GSK is one of my best stocks to buy now
Despite the drop in GSK’s share price, I was always optimistic the share price would rise back up and dividends would remain above the market average. The share price has increased steadily and the dividend yield stands at over 5%. The FTSE 100 average is 3%-4%.
There are other stocks that offer a higher yield but GSK is a quality business in my eyes and a large player in its market. Pharma is a large saturated market but there are only a handful of names that resonate with most people throughout the world. GSK is one of them. In addition to this, GSK is taking the necessary steps to reduce its carbon footprint towards net zero in 2030 and reduce costs. This can potentially lead to better performance and more investor returns.
One of the primary characteristics I look for in my best stocks to buy now is consistency of performance. GSK’s most recent update for Q3 2021 was revealed in November last year. Performance across all divisions saw gains as well as an increase in a healthy cash balance. Furthermore, the cost cutting has already begun too. GSK also has a positive track record of performance as well. I understand past performance is not a guarantee of the future, however. I can see revenue has increased year on year for the past four years. Profit increased for three years prior to the pandemic-affected 2020.
Risks involved
Despite my bullish stance, GSK shares do have risks. Firstly, dividends are not guaranteed and can be cancelled by a business anytime. Next, the division of the business into two could be costly and a distraction for management. This could result in performance dropping off and reduced payouts for investors in the form of dividends. In addition to this, pharma is a very competitive sector. All the big pharma firms are vying for market share and the next big drug or vaccine. GSK could be adversely affected by its competitors.
Overall I think GSK could make me an excellent passive income and it is also one of my best stocks to buy now. This is because it is a quality business with a great profile and offering as well as the fact the shares currently look like good value to me.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK 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.
