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FTSE 100 investors are spoilt for choice when it comes to dividend stocks. Some top-class UK blue-chips are currently trading at low valuations while offering decent yields. Two have just jumped into view.
I actually hold one of them: pharmaceutical giant GSK (LSE: GSK). Sadly, it hasn’t given me much joy, so far.
When I first started writing for this site, 15 or 16 years ago, a fellow Fool spoke of GlaxoSmithKline (as it was then) with awe. It offered heaps of income and bags of share price growth, and its future looked as bright as a button.
GSK’s lost decade
Then its drugs pipeline started to run dry, forcing CEO Emma Walmsley to throw money at research & development (R&D) rather than investors, as she battled to replenish it.
GSK froze the dividend per share at 80p for years, then re-based it to just 44p in 2021. Peeling off its Sensodyne-maker Haleon in July 2022 failed to kick GSK into life. US litigation certainly didn’t help. And now GSK has Donald Trump to contend with, as his administration menaces foreign drugs companies.
The GSK share price is down 20% in the last year and trades at similar levels to a decade ago. It’s far from a basket case though. On 30 April, the board reported a 2% jump in total Q1 sales to £7.52bn and confirmed full-year guidance despite tariff concerns.
A price-to-earnings ratio of just 8.95 looks tempting, while GSK’s yield has crept up to 4.28%. I hold the pharma stock and although it’s been a frustrating experience, I still think it’s worth considering for a bargain-hunters willing to put up with some short-term frustration.
Markets unsure of Shell
My next cheap blue-chip is oil & gas giant Shell (LSE: SHEL)? It’s also no longer the no-brainer portfolio hold of yore.
The pandemic robbed Shell of its proud track record of not cutting dividends since the war, and net-zero confusion and the sliding oil price is wreaking further havoc. The only positive is that it’s in a better position than rival BP, currently in strategic disarray.
The Shell share price is down 13% over the last year. It even missed the bounce of the last month, failing to revive when triggered by Trump stepping back on trade threats.
It doesn’t help that oil is sliding towards $60 a barrel. With OPEC rumoured to be hiking production, it might fall lower.
Dividends and buybacks
On 2 May, Shell posted better-than-expected first quarter adjusted earnings, with profit beating consensus at $5.6bn. It also launched a fresh $3.5bn share buyback, making this the 14th consecutive quarter when it’s bought at least $3bn of its own shares. If that’s failure, bring it on.
It’s not all good news though, with net debt topping $41bn. Shell also faces pressure to push on with the green transition, as it tries to balance keeping investors and climate campaigners happy.
These concerns are reflected in today’s low P/E of just 8.7%, while the dividend yield has edged up towards 4.5%. Again, I think this blue-chip giant is well worth considering at today’s discounted valuation. Yet I’m not anticipating an immediate recovery. Once again, strong nerves and patience are required.
