2 Reasons To Fill Your Basket With Wm. Morrison Supermarkets plc

Royston Wild looks at why Wm. Morrison Supermarkets plc (LON: MRW) could be set for a stunning turnaround.

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In recent days I have looked at why I believe Wm. Morrison Supermarkets (LSE: MRW) (NASDAQOTH: MRWSY.US) remains on course for further woes at the checkout.

But, of course, the world of investing is never a black and white business — it take a varietyof views to make a market, and the actual stock price is the only indisputable factor. With this in mind I have laid out the key factors which could, in fact, thrust Morrisons’ share price higher.

Online presents ripe opportunity

Morrisons’ full-year results last week weren’t far short of a horror show. Like-for-like sales dropped 2.8% for the year concluding February 2014, accelerating from the 2.1% dip punched the previous year, and driving the firm to a £176m pre-tax loss from a £879m profit in 2013.

Although the retailer’s far-reaching transformation plan has failed to ignite, Morrisons’ online presence could spectacularly revive its sales performance in future years. Morrisons.com was launched in association with internet grocer Ocado in January, allowing the chain to benefit from the latter’s multi-year experience and extensive infrastructure, and the supermarket is planning to reach half of the country’s households by the end of fiscal year.

The grocery sector is one retail channel which has massively underutilised the massive internet marketplace — only 5% of all transactions are made online — leaving plenty of untapped potential for the likes of Morrisons to take advantage of.

Indeed, research house Key Note expects exploding sales of mobile devices like smartphones and tablet PCs, as well as the roll-out of 4G and massive investment in broadband across the country, to cause internet supermarket sales to rise at a double-digit pace between 2012 and 2016. Although the online competition is hotting up, Morrisons’ massive investment in this area has the potential to create huge rewards.

Chunky dividends  expected to keep rolling

Morrisons hiked the dividend 10% in the full-year payout for the past year, to 13p per share, making a bullish sign of intent for future dividends. Still, a backdrop of escalating earnings woe — forecasts point to a 12% earnings decline in the year concluding January 2015 — will push the payout 5.4% lower to 12.3p, analysts reckon.

Still, a 4.1% recovery in the dividend, to 12.8p per share, is anticipated in the following 12 months as earnings edge 4% higher.

And although the payout is predicted to remain below that of the last year, projections for 2015 and 2016 still create chunky dividends of 5.2% and 5.4% respectively. This smashes a forward average of 3.2% for the complete FTSE 100.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in Wm. Morrison Supermarkets. The Motley Fool has recommended  Wm. Morrison Supermarkets.

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