Glaxo could scrap plan to return £4bn to investors and focus on its dividend

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GlaxoSmithKline may ditch a plan to return £4bn 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 to support its dividend, according to analysts at Goldman Sachs and Berenberg Bank.

GSK said last year it intended to return £4bn to shareholders in 2015 through a so-called B share scheme, following its $20bn-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 programme.

“Momentum behind this capital return seems to have stalled,” Berenberg analyst Alistair Campbell said yesterday. “With the dividend commitment under pressure, we think there is now a credible possibility the company will cancel the capital return in favour of supporting the dividend.”

Scrapping the cash return could cut earnings per share (EPS) forecasts by 3-4 per cent. But this would be offset by renewed confidence in the dividend, which offers a fat yield of 5 per cent.

While the company has promised that this year’s dividend will be held at 2014’s level of 80p 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.

A GSK spokesman said it was company policy never to comment on market specula- tion.

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.