Supermarket shoppers may be feeling the pinch, but investors holding Tesco (LSE:TSCO) shares have had reason to smile. That’s because the FTSE 100 stock is up 82% in three years, with dividends on top.
But what about the longer term? Would someone be feeling as chipper if they had bought £3,000 worth of Tesco shares 105 months ago? Let’s find out.
Looking back
Before going any further, I should probably address the elephant in the room. Why 105 months? Well, that takes us back to November 2017, when Tesco resumed dividend payments after the 2014 accounting scandal. At the time of the announcement, CEO Dave Lewis hailed it as “a significant milestone in the recovery of the business“.
By my calculation, £3,000 worth of shares bought back then would be worth around £5,500 today. But the real magic for long-term investors comes from the regular and rising dividends that have since flowed from the UK’s leading supermarket.
Add those in, including a special dividend in 2021 following the sale of its Thailand and Malaysia businesses, the figure rises to roughly £7,500. That’s a very solid return.
What’s going on now?
During the Christmas period, Tesco’s market share peaked at nearly 29%. While it’s slipped back since, it was still 27.8% in the 12 weeks to 9 August, according to market researcher Worldpanel by Numerator.
That’s impressive, though there’s a natural ceiling on how high that figure can go. After all, Marks & Spencer, Ocado and Lidl have also been doing well recently, but then there’s Sainsbury’s, Asda, Aldi, Morrisons, and more. Competition is intense.
The biggest challenge they’re all facing is inflation due to the Iran conflict. We’ve been hearing for months how food price inflation is set to hit 10% later this year, heaping further pressure on price-weary shoppers.
However, official food inflation fell to 1.3% in July, the lowest since September 2021. So what’s going on?
A tightrope
Thankfully for consumers, it appears that supermarkets are shielding them from the worst by keeping costs down. Promotions are everywhere.
How long this can go on though, I’m not sure. Some analysts expect food inflation to rise to 3-5% in the months ahead.
Due to its massive scale and bargaining power with suppliers, Tesco can absorb cost increases better than most. It’s targeting a further £500m saving in the current 2026/27 financial year to keep prices competitive.
But absorbing further cost inflation without hurting profit margins is a tightrope that Tesco’s walking. And with the share price basically flat year to date, while the FTSE 100 has risen by nearly 8%, it seems investors are in wait-and-see mode.
What about the future?
Are Tesco shares worth considering today? The answer depends on what your expectations are. Looking to the next couple of years, I don’t expect explosive returns. Tesco’s guiding for full-year adjusted operating profit of £3bn-£3.3bn, which would be flat year on year.
However, if you view the stock as a steady compounder to be held for years, then I see the appeal. The forecast dividend yield is 3.6% while the valuation’s quite reasonable.
Meanwhile, Tesco’s competitive position looks solid, with the Clubcard loyalty scheme and Aldi Price Match being extended.
For me though, I see more attractive FTSE 100 dividend stocks right now.
Should you invest £5,000 in Tesco Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco Plc made the list?
Ben McPoland has no position in any of the companies mentioned.
Supermarket shoppers may be feeling the pinch, but investors holding Tesco (LSE:TSCO) shares have had reason to smile. That’s because the FTSE 100 stock is up 82% in three years, with dividends on top.
But what about the longer term? Would someone be feeling as chipper if they had bought £3,000 worth of Tesco shares 105 months ago? Let’s find out.
Looking back
Before going any further, I should probably address the elephant in the room. Why 105 months? Well, that takes us back to November 2017, when Tesco resumed dividend payments after the 2014 accounting scandal. At the time of the announcement, CEO Dave Lewis hailed it as “a significant milestone in the recovery of the business“.
By my calculation, £3,000 worth of shares bought back then would be worth around £5,500 today. But the real magic for long-term investors comes from the regular and rising dividends that have since flowed from the UK’s leading supermarket.
Add those in, including a special dividend in 2021 following the sale of its Thailand and Malaysia businesses, the figure rises to roughly £7,500. That’s a very solid return.
What’s going on now?
During the Christmas period, Tesco’s market share peaked at nearly 29%. While it’s slipped back since, it was still 27.8% in the 12 weeks to 9 August, according to market researcher Worldpanel by Numerator.
That’s impressive, though there’s a natural ceiling on how high that figure can go. After all, Marks & Spencer, Ocado and Lidl have also been doing well recently, but then there’s Sainsbury’s, Asda, Aldi, Morrisons, and more. Competition is intense.
The biggest challenge they’re all facing is inflation due to the Iran conflict. We’ve been hearing for months how food price inflation is set to hit 10% later this year, heaping further pressure on price-weary shoppers.
However, official food inflation fell to 1.3% in July, the lowest since September 2021. So what’s going on?
A tightrope
Thankfully for consumers, it appears that supermarkets are shielding them from the worst by keeping costs down. Promotions are everywhere.
How long this can go on though, I’m not sure. Some analysts expect food inflation to rise to 3-5% in the months ahead.
Due to its massive scale and bargaining power with suppliers, Tesco can absorb cost increases better than most. It’s targeting a further £500m saving in the current 2026/27 financial year to keep prices competitive.
But absorbing further cost inflation without hurting profit margins is a tightrope that Tesco’s walking. And with the share price basically flat year to date, while the FTSE 100 has risen by nearly 8%, it seems investors are in wait-and-see mode.
What about the future?
Are Tesco shares worth considering today? The answer depends on what your expectations are. Looking to the next couple of years, I don’t expect explosive returns. Tesco’s guiding for full-year adjusted operating profit of £3bn-£3.3bn, which would be flat year on year.
However, if you view the stock as a steady compounder to be held for years, then I see the appeal. The forecast dividend yield is 3.6% while the valuation’s quite reasonable.
Meanwhile, Tesco’s competitive position looks solid, with the Clubcard loyalty scheme and Aldi Price Match being extended.
For me though, I see more attractive FTSE 100 dividend stocks right now.
Should you invest £5,000 in Tesco Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco Plc made the list?
Ben McPoland has no position in any of the companies mentioned.
