Veteran income investor Neil Woodford has hit out at the strategy driving pharmaceutical giant GlaxoSmithKline (GSK) as the group ignites its search for a new chief.
The fund manager, whose £8.3bn CF Woodford Equity Income fund has GSK as its third-largest holding, claimed investors should expect a dividend cut from the pharma group because it was over-distributing to shareholders.
Mr Woodford's comments came just days before a wave of stories about GSK starting the search for a replacement for its chief executive Andrew Witty, who has been in the post since 2008 and is expected to help find a successor for when he steps down next year.
"GSK is wedded to its dividend for the time being and can afford it as its cash flow more than covers [it]," Mr Woodford said.
"But the company is over-distributing and will cut its dividend. I've said to the chairman and chief executive, 'your heads will be on spikes outside the front of your building if you cut that dividend and don't do the things that you should do for your shareholders'."
He added, however, that if management did the right things by its shareholders, it could "earn the right to rebase its dividend", but while the incumbent team was running the company, the "conglomerate nature of the business will persist".
Mr Woodford has in recent years called for a break-up of GSK as a way of realising what he sees as the true value of the company. He said he had "enormous respect" for Mr Witty, who has risen through the ranks from a graduate employee to the top of the FTSE 100 goliath, but believed the business had "the wrong strategy".
At 1,394p, we remain sellers.
For our full fund manager interview with Neil Woodford, click here.
