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3 Great Reasons Why Tesco Plc Is Set To Take Off

Today I am looking at why I believe Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) is a stunning stock selection if you are looking to profit from an exciting turnaround story.

International business continues to stride higher

Having shaken off the shackles of its failed Fresh and Easy venture in the US, Tesco is in prime position to latch onto the fantastic growth potential offered up by international markets, particularly in Asia. Indeed, revenues in the emerging market hotspot of Asia leapt 10.9% in the first quarter.

The company drew headlines this month when news broke that it was in talks with China Resources Enterprise — the nation’s largest retail chain — to merge its 131 stores with the Chinese firm’s 3,000 hypermarkets and supermarkets. Tesco has experienced disappointment in not being able to crack the country as quickly as it had expected, so the move will enable it to maintain a presence there whilst cutting costs as it plans its next move.

Excellent growth in convenience and online

Tesco has been one of the grocery industry’s pioneers in the realm of online shopping, and the firm continues to pull up trees in this most lucrative of retail channels — UK sales here jumped 12.8% in 2012 to more than £2bn.

Performance here continues to outperform that of the wider grocery market, and the firm plans to bolster its presence here by doubling the number of ‘Click and Collect’ collection locations to 300 by the end of the year. Tesco is betting heavily in this area to deliver future growth, and is also due to open its sixth online only store in the coming months.

As well, Tesco is also benefitting from changing consumer trends which has seen smaller, more regular shopping trips become more popular at the expense of large weekly trips. The business opened 140 Express and 26 One Stop stores last year and has said that, of the 1.4m square feet that it plans to add to its total retail space this year, a vast proportion will be dedicated to unveiling new convenience shops.

Bang some bumper dividends in your basket

Although Tesco kept the dividend on hold at 14.76p last year, the supermarket has a stunning reputation of offering above-average payout yields and on-year dividend increases. And City analysts expect dividends to resume an upward path over the next two years — full-year dividends of 15.12p and 15.93p are anticipated for fiscal 2014 and 2015 respectively.

Payments for these years are currently 4.1% and 4.3%, compared with the prospective 3.1% FTSE 100 average.

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> Royston does not own shares in Tesco. The Motley Fool owns shares in Tesco.