With the best Cash ISA on the market today offering an interest rate of just 1.5%, I think it’s best to overlook this meagre level of income and invest your money in shares instead.
Indeed, the FTSE 100 is full of blue-chip income stocks that offer both a higher rate of income and the potential for capital gains as well. Today I’m going to highlight just two of these FTSE 100 income and growth champions.
Buy-and-hold AstraZeneca (LSE: AZN) and GlaxoSmithKline (LSE: GSK) both offer a highly attractive combination of income and growth. At the same time, these two pharmaceutical businesses are extremely defensive. The global healthcare market is only growing, and it isn’t subject to cyclical factors like so many other industries, so I think I am quite safe in saying that these companies will still be around 50 years from now doing what they do best, developing, producing and selling treatments for patients all over the world.
Both Astra and Glaxo are experts in their respective fields. Over the past few years, Glaxo has been building out its consumer healthcare products business, which produces and supplies products such as Sensodyne toothpaste and Panadol. In December 2018, the company announced an agreement with US drugs giant Pfizer (NYSE:PFE) to form a world-leading consumer healthcare joint venture, which the partners aim to spin off within three years.
This transaction could potentially unlock billions of dollars in value for Glaxo’s shareholders as analysts have said many times in the past that they believe the component parts of Glaxo are worth more apart than they are together.
The company also owns a share in ViiV Healthcare, a world leader in the development and production of HIV medication and Glaxo is a world leader in the production of vaccines.
Astra, meanwhile, has carved out a niche for itself in the oncology market. Management has been focusing its efforts on this fast-growing market for the past few years, and now the company is bringing a number of new treatments to market which could end up becoming multibillion-dollar anti-cancer drugs. For the first quarter of 2019 overall product sales leapt 14% at constant exchange rates, led by a 59% increase in sales at the group’s oncology business.
The future is exciting The future for both of these companies is exciting and I think shareholders will be well rewarded over the next five to 10 years as Astra’s oncology pipeline starts to yield results and Glaxo spins off its consumer healthcare business.
In the meantime, shareholders can pick up a market-beating dividend yield from both. At the time of writing, shares in Glaxo support a dividend yield of 5.1% and shares in Astra yield 3.6%. Shares in both businesses are not particularly expensive either. Glaxo trades at a forward P/E of just 14, compared to the UK pharmaceutical industry average of 18.6, and Astra is dealing at a 2020 P/E of 17.9.
So overall, if you are looking to break free from the world of the low returns in the Cash ISA market, then I think it is worth checking out Astra and Glaxo for their defensive qualities, attractive valuations and market-beating dividend yields.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. 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.
Motley Fool UK 2019