Glaxo's Generous Dividend Policy May End After Witty's Exit

  • Glaxo has industry's most generous dividend payout vs earnings
  • Witty to leave Glaxo in March 2017 after 9 years at helm

There’s a word that keeps cropping up in connection with Andrew Witty’s planned departure from GlaxoSmithKline Plc: dividends.

Glaxo is on a pace to pay out dividends this year equal to about 95 percent of estimated earnings per share, according to data compiled by Bloomberg. That’s the highest among the world’s 10 biggest drugmakers, a group whose average payout is 57 percent of earnings, the data show.

The company has said it is committed to paying ordinary dividends of 80 pence a share through 2017. That generous stance may go with Witty, who said on Thursday he plans to retire next March amid a broader board shakeup.

The 51-year-old chief executive “had become increasingly wedded to keeping the dividend, when in reality it looks too high given the current earnings and cash generation of the business,” said Laura Foll, who helps oversee 1.5 billion pounds ($2.2 billion) of assets, including Glaxo shares, at Henderson Global Investors in London.

The lion’s share of pharmaceutical stock returns in recent years has stemmed from dividends. Glaxo, which offered shareholder returns of 61 percent in the past five years, would’ve returned only about a third of that without its dividend, according to Bloomberg data.

Glaxo is starting to look for a new leader, both inside and outside the company. That person will need to decide what he or she “can do better with the cash flow that is used for that dividend -- reinvest it somewhere else and improve the growth prospects,” said Joe Walters, manager of the Royal London U.K. Income With Growth Trust and another Glaxo stockholder.

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