Divi-X Annual Review of Glaxo SmithKline plc (ADR)

Back once again with a 'Play of the Week' Annual Review.  The whole purpose of the 'Play of the Week' Annual Reviews is to show readers the long-term success of the "Divi-X" System compared to not using the "Divi-X" System.  So, without further delay, let's see how our 'Play of the Week' investment fared in its first full year of trading in our Annual Review of Glaxo SmithKline plc (ADR), chosen back on March 16th, 2016.

Company Profile

GlaxoSmithKline plc (GSK) is a healthcare company. The Company is engaged in the creation and discovery, development, manufacture and marketing of pharmaceutical products, including vaccines, over-the-counter (OTC) medicines and health-related consumer products. The Company's segments include Pharmaceuticals, Pharmaceuticals R&D, Vaccines and Consumer Healthcare. The Pharmaceuticals business develops and makes medicines to treat a range of acute and chronic diseases. The Vaccines business develops, produces and distributes over 1.9 million vaccines every day to people across the world. The Consumer Healthcare business develops and markets products in various categories, such as Wellness, Oral health, Nutrition and Skin health. The Pharmaceuticals Research and Development (R&D) focuses on the discovery and development in various areas of research, which include human immunodeficiency virus (HIV) and infectious diseases, oncology, immuno-inflammation, respiratory and rare diseases.  (Source:  Google Finance)

2016 GSK Annual Report

 

The Dividend Times: An Introduction to The "Divi-X" System

The Last Year - Glaxo SmithKline plc (GSK)

The Leverage Projection Worksheet

GSK Leverage Projection Worksheet

GSK Leverage Projection Worksheet

Aside from Proctor & Gamble (PG), surprisingly Glaxo SmithKline plc is one of the most read articles on my site.  When I initiated coverage on GSK, the price was $39.66 a share.  At the time, (GSK) paid a current dividend of $.549/share for the quarter which equated to a dividend yield of 5.54% annually but with one catch; Glaxo SmithKline pays a fluctuating dividend every quarter.  Prior to initiating coverage on (GSK), below is what the previous five year dividend history looked like.

GSK 031111 38.41 Yld 5.48 PE NA Details

(GSK) Dividend History from 2011 to 2016

Despite being up and down over the last five years, you can still see the pattern of dividend payouts which is basically three smaller payouts and one larger one during the year..  Based on the then current dividend of $.549, we we're able to purchase an additional 36.91 shares

Returns To Date

When we compiled our projections for Glaxo SmithKline plc last year, this is what we were expecting:

GSK 031616 39.66 Yld 5.54 PE 8.03 RetScen

GSK 031616 39.66 Yld 5.54 PE 8.03 RetScen

After our first year, we were expecting a modest outperformance over 'Without Divi-X'  of $96.71 ($2,951.58 - $2,854.87) which represented an annual return of 17.97% for our first year compared to 14.10% for 'Without Divi-X.' 

Well, here we are a year later.  Let's see how we did.

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR RetScen

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR RetScen

A few things to note about this chart:

  1. Right out of the gate, "Divi-X" and 'Without Divi-X" started to exceed our 'Expected Return' (red line) rate of 9% annually.
  2. "Divi-X" (green line) pretty much took the lead right from the start and reached a high of $3,075.28 back in July of 2016 which equated to a 9.27% lead over 'Without.'.
  3. Both "Divi-X" and 'Without' then slid into negative territory over the next four months only to recover a short time later to end the year with returns below our 9% 'Expected Return' rate.
  4. The year ended with "Divi-X" having a lower than expected 2.12% lead over 'Without,' or 'All Cash'

Translation in Percentages

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR RetPerc

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR RetPerc

 

Dividend Yields


Now, for a look at our dividend picture.

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR YOC

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR YOC

A few things to note about this chart:

  1. You shouldn't expect anything too impressive on the dividend picture in the first two to three years of holding a position.  Immediately, in our first year, "Divi-X" yield (green) trailed 'Without' yield (purple) by 2.14%.  This should never come as a surprise.  In the beginning, "Divi-X" will almost always trail 'Without' because of the front-end interest expense on our extra shares.  Depending on how long you 'HOLD,' that gap will not only narrow over time but will in fact significantly favor "Divi-X" whether there are dividend increases in the future or not.

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Running Leverage Rate

The "Divi-X" System Workbook monitors one's 'Running Leverage Rate' to keep the user aware of if and when a deteriorating share price increases an investor's risk level beyond their acceptable risk tolerance level.

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR Run Lev Rte

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR Run Lev Rte

A few things to note about this chart:

  1. Our initial leverage position started at 36.91%.
  2. Notice the steady decline over time in the 'Loan Balance.'  Ideally, you will want the 'Levered Percentage' trend line to decline at a faster pace than the trend line for the 'Loan Balance.'  The faster the decline, the bigger your winner.  If your 'Leverage Percentage'  lingers around your original 'Leverage Percentage,' it is no cause for alarm but if it continues to do so, you could very well be holding an underperformer.  Should your 'Leverage Percentage' start to go up, put yourself on alert for a potential sell, depending on your risk tolerance and your faith in the stock you're holding.
  3. Because the share price popped a bit immediately after buying at $39.66, you see an immediate dip in the 'Running Leverage Rate' or 'Levered Percentage' to 33.91% from 36.91%.  That's because the increase in market value reduced the percentage ratio of debt to market value.
  4. As of March 2017, our 'Running Leverage Rate' stood at 32.21%.  A decrease of 12.74% from where we started at a year ago.  That is fantastic progress for our first year.

 

 

Conclusion

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR Lev Summ

GSK 031616 39.66 Yld 5.54 PE 8.03 MP 80 1YR Lev Summ

Okay, so let's recap:

  1. Last year, "Divi-X" anticipated we would have a 16.98% realized/unrealized return on our investment.
  2. After our first year, "Divi-X" fell short of the projection by 3.47% but still managed to outpace 'Without' by 2.12% for a total one year return of 13.51%.  Nothing to complain about at all.
  3. Because we came up a little short last year, hopefully we'll make up the difference and then some this year.

That's it for our annual review of Glaxo Smith Kline plc for this year.  We're putting this one back on the shelf and we'll revisit it again next March.  Till then, many happy returns.

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Authored by Lee Carroll Wentker

All screen captures are taken from 'The "Divi-X" System Workbook'

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The security showcased here is for learning purposes only. It is not a recommendation or an endorsement of any kind. Do your own due diligence before making any investment.

All work is copyrighted by The Dividend Times, LLC 2015 - 2017

 

 

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