My favourite FTSE 100 share had an awful 2020. I expect much higher returns in 2021!

With only one morning of trading left on the London market in 2020, what a year it’s been for UK investors. This year started innocuously enough, but little did we know that the FTSE 100 would peak in late January. Then, as the Covid-19 virus spread across the globe, share […]

With only one morning of trading left on the London market in 2020, what a year it’s been for UK investors. This year started innocuously enough, but little did we know that the FTSE 100 would peak in late January. Then, as the Covid-19 virus spread across the globe, share prices worldwide went into complete meltdown.

The FTSE 100 crashes and then rebounds

By 23 March, the FTSE 100 had crashed below 5,000, down almost 2,550 points — more than a third (33.8{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}) — in under three months. But then the Footsie staged a solid comeback, climbing to hit a post-panic peak above 6,600 earlier this month. On Wednesday, the blue-chip index closed at 6,556 points, up more than three-tenths (31.3{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}) from its March bottom.

Of course, not all Footsie stocks bounced back after the March meltdown. For many heavyweight and mega-cap shares, it’s been an annus horribilis. Notably, big banks, oil & gas producers and airline shares all had a brutal year. Earlier today, I revealed these 10 shares were the FTSE 100’s biggest dogs in 2020.

This heavyweight was a dog in 2020

Unfortunately, my family’s largest individual FTSE 100 shareholding had a dreadful 2020. Alas, this loss alone equates to several years of income. What’s more, this stressed share was in a sector that had an outstanding 2020 overall: large-cap pharmaceuticals. The smashed share that disappointed me in 2020 is, of course, GlaxoSmithKline (LSE: GSK). For the record, I’ve owned GSK shares pretty much constantly for the past 30 years. Over three decades, I’ve watched this FTSE 100 stalwart grow and evolve into the UK’s #2 pharma business, behind AstraZeneca. But being a GSK owner in 2020 has been a thankless task.

On Wednesday, the GSK share price closed at 1,358p, valuing this pharma giant at £68.5bn. But the shares had peaked at 1,857p on 24 January, almost exactly £5 above the current price. What’s more, GSK’s stock is down almost a quarter (24.5{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}) over the past 12 months. This places it at #85 in the FTSE 100 in terms of share-price performance in 2020. In other words, GSK is only five places above the 10 dogs I mentioned in my earlier article. Hardly much of an accolade, I admit.

GSK is a dividend dynamo

Although GSK shares have had an awful 2020, I expect much higher returns from this FTSE 100 stock in 2021. Indeed, throughout this year, I’ve continued to invest my quarterly cash dividends into yet more GSK stock at lower prices. In time, I expect this reinvestment to pay off, because GSK shares are looking remarkably cheap right now. They currently trade on a price-to-earnings ratio of 10.7 with an earnings yield of 9.4{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b}. Trust me, for GSK, this is very attractive in historical terms.

One reason I’ve held onto GSK through good years and bad is because it pays one of the biggest dividends in the FTSE 100. At 80p a share, the annual dividend costs GSK around £4bn each year in cash outflow. On the current share price of 1,358p, this equates to a bumper dividend yield of 5.9{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} — almost twice the 3.1{429fc2506e610357e12b2a5665db82631200a2e00b3a1d8839077d76f18e2e8b} on offer from the wider FTSE 100.

In summary, my family portfolio has lost a fortune from being invested in GSK in 2020. But I remain confident that I’ll make this loss back (and more) in the years ahead. That’s why I’ll keep buying this FTSE 100 stock at these low prices!

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Cliffdarcy owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. 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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