* Payout fears sparked by profit warning after weak Q2
* GSK seen avoiding cut but dividend may flatline - analysts
* Drugmaker says dividend "remains our priority"
LONDON, July 29 (Reuters) - GlaxoSmithKline's fat dividend is under strain but Britain's biggest drugmaker is likely to scrape by without cutting payouts as it seeks to compensate investors during a bumpy reshaping of the company.
Worries about GSK's dividend, which offers a sector-beating yield of 5.5 percent, have mounted since last week when it warned on 2014 profits and confirmed plans to sell several profitable older drugs.
Industry analysts, however, believe GSK's current dividend is safe for now, although its policy of growing payouts year by year is in doubt.
GSK's dividend is already equivalent to approximately 80 percent of earnings and that figure could climb to about 90 percent once it divests older drugs with annual sales of around 1 billion pounds ($1.7 billion).
Ditching these so-called established products makes long-term sense, since their sales are declining, but they remain extremely profitable, with first-half operating margins of 58.7 percent against 26.3 percent for the group as a whole.
As a result, the sale will inevitably dilute earnings per share, tightening dividend cover further. Just how stretched things will get is now a key focus for shareholders.
While GSK announced a 6 percent increase in the dividend for the first half of 2014, consensus forecasts suggest growth will moderate in the second half, giving a full-year dividend of 80.8 pence from 78p in 2013, according to Thomson Reuters data.
GSK has already cut its buyback programme as a result of the dividend becoming more difficult to pay and four separate research notes on Tuesday highlighted the looming squeeze.
Berenberg expects the dividend to be held at 80p a share from 2014 through 2017 as GSK tries to get the payout ratio back down to 70 percent.
Morgan Stanley also predicted a stable dividend, while Barclays said GSK could still deliver some growth, although "it is possible dividend growth does not match our forecasts".
Liberum analysts were more wary, arguing the dividend was safe for the coming 18 months but warning that a change in strategy or a worsening outlook could undermine this picture.
Morgan Stanley rates GSK "overweight", while Berenberg and Barclays have it as a "hold" or "equal weight", and Liberum ranks it a "sell".
ROOM FOR MANOEUVRE
GSK Chief Executive Andrew Witty and his finance head Simon Dingemans have limited room for manoeuvre as they try to steer the company through a tough period of declining sales of top-selling lung medicine Advair.
The dividend may be sacrosanct, but the cash it eats up - coupled with GSK's sizeable borrowings of 14.4 billion pounds and the potential for hefty fines related to bribery claims in China - means funding for investment will be tight.
"The dividend remains our priority, in terms of shareholder distributions. There's no change to the policy," Dingemans told investors last week.
But he acknowledged the company was "paying a relatively high amount" as it goes through a transition period from heavy reliance on Advair to a hoped-for phase of strengthening demand for new respiratory drugs.
GSK shares had their biggest one-day drop on July 23 after the company cut its 2014 earnings outlook due to sales of its inhaled lung drugs in the all-important U.S. market.
Witty hopes new drugs Breo and Anoro will pick up the slack left by Advair, and is also pinning hopes on a complex three-way deal with Novartis, announced in April, that will see GSK become more focused by increasing its footprint in consumer healthcare and vaccines.
He said at the time the deal would "create significant new options to increase value for shareholders", sparking speculation GSK might consider a break-up as it has little financial headroom to bulk up operations.
But any such moves look distant, since Novartis will not decide until 2018 at the earliest whether it wants to sell its stake in the consumer healthcare joint venture. (Editing by Erica Billingham)