GlaxoSmithKline plc isn’t the only Footsie dividend stock I’d buy today

Those seeking blue-chip shares with exceptional dividend prospects could do a lot worse than medicines mammoth GlaxoSmithKline (LSE: GSK) today.

The last time I wrote about the FTSE 100 giant in November, I lauded the exceptional earnings outlook that its world-class R&D teams are helping to support. And since then the company has furnished the market with positive Phase III data for its Shingrix shingles treatment, as well as promising results from its DREAMM-1 blood cancer study. It also received FDA approval for its Nucala asthma battler for the treatment of Churg-Strauss syndrome late last year.

The fruits of its rejuvenated product pipeline are not set to blast earnings skywards for some time yet, while the legacy effects of patent losses on key products like Advair are also expected to rumble on. Indeed, City forecasts predict that the business will follow an 8% profits rise in 2017 with a 3% reversal this year. Only a modest 4% rebound is predicted for 2019.

However, with cash flows at the business improving (free cash flow for January-September clocked in at £1.6bn versus £1.3bn for the same 2016 period), GlaxoSmithKline is expected to continue doling out market-mashing dividends in the meantime, providing investors with plenty of consolation.

The Square Mile’s’ army of boffins expect it to keep the dividend locked at 80p per share for 2018, meaning investors can enjoy a bulky 6% yield. And next year’s profits recovery is anticipated to help resurrect the company’s progressive dividend policy — an 80.2p per share payout is currently estimated, keeping the yield around the same elevated levels.

A tasty titan

While I am a big fan of the Brentford business, the unpredictable nature of drugs development means that many risk-averse investors may wish to ignore its cheap forward P/E ratio of 12.5 times and invest elsewhere.

Such share pickers may want to instead look at fellow Footsie giant Diageo (LSE: DGE), a stock whose heavyweight brands like Captain Morgan rum and Baileys liquor, along with its gigantic geographic footprint, provide it with terrific earnings visibility, a critical quality for dividend growth.

In a bubbly half-year report last week the beverages giant reported that organic net sales had risen 4.2% between July and December, during which time organic volumes improved 1.8% year-on-year.

Diageo noted that all of its regions contributed to organic growth in the period, with group sales helped by the vast sums the company is dedicating towards product innovation and marketing. With revenues rising and profits booming (operating profit jumped 6.1% in the period to £2.2bn), the drinkers’ favourite was encouraged to lift the interim dividend 5% to 24.9p per share.

Those seeking eye-watering yields may want to look elsewhere. But those seeking strong and steady payout growth could do a lot worse than to plough their cash into Diageo considering the company’s strong cash flows and solid earnings picture. City analysts are forecasting bottom-line expansion of 7% and 9% in the 12 months to June 2018 and 2019 respectively.

Current forecasts suggest that fiscal 2017’s full-year dividend of 62.2p per share will rise to 66.2p in the present period, and again to 70.3p next year. Investors can enjoy a chunky-if-unspectacular yield of 2.6% for this year and 2.8% for the following period, therefore.

Diageo’s prospective P/E ratio of 21.9 times may put off many a value seeker, but for my money the spirits star is worth every penny.

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Royston Wild has no position in any of the shares mentioned.  The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Diageo. 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.

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