The Motley Fool

Will Tesco plc pay its shareholders a dividend this year?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

It’s no secret that Tesco (LSE: TSCO) has been a dividend stock disappointment in recent years.

Only six years ago, it was considered to be a core holding among UK dividend investors. The UK’s largest supermarket had racked up an impressive 27 years of consecutive dividend growth, and the payout was generous. However, after paying out three identical dividend payments of 14.8p between 2012 and 2014, it shocked investors in 2015 when it cut its first half dividend by 75%. Since then, shareholders have received no dividend at all.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

What went wrong?

Most investors are cognisant of the competitive landscape that exists within the UK supermarket sector at present. Around four years ago, German discounters Aldi and Lidl began their assault on the so-called ‘big four’ UK supermarkets, aggressively targeting market share. Tesco, Sainsbury’s, Asda and Morrisons, with their sparsely populated hypermarkets, were completely unready for the price war the discounters would unleash.

The discounters’ growth campaign has been a huge success, with their combined market share growing nearly 80% since 2013. Furthermore, it shows no signs of abating. Over the 12 weeks to 13 August, Aldi and Lidl sales grew 17.2% and 18.9% respectively, while Tesco generated growth of just 3%. Tesco’s market share has fallen to 27.8%, down from over 30% in 2011.

Compounding this, in 2014, Tesco announced that it had been overstating its profits. The supermarket watchdog discovered that it had been deliberately withholding money from suppliers in order to boost its performance figures, and many investors sued as a result. With profitability down significantly, Tesco was forced to cut its dividend. With this recent history in mind, is there any chance of a dividend in the future? Let’s take a look at today’s interim results for a clue.

The dividend is back

This morning’s results look to be showing signs of a turnaround.

Group sales for the period rose 3.3% (0.7% constant currency) to £25.2bn, and operating profit before exceptional times increased 27.3% (23.7% constant currency) to £759m. Pre-exceptional diluted earnings per share surged 71% higher to 5.46p and the company also managed to reduce its debt pile by 25%. Most importantly, for dividend investors, the supermarket announced that it will pay an interim dividend of 1p per share this year.

Chief Executive Dave Lewis commented: “We are continuing to make strong progress. Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half what they were when we started our turnaround three years ago. Today’s announcement that we are resuming our dividend reflects our confidence that we can build on our strong performance to date and in doing so, create long-term, sustainable value for all of our stakeholders.”

Underwhelming yield

So can shareholders expect large dividend cheques going forward? Not in the short term, unfortunately. In today’s report, the company stated: “We anticipate a broadly one-third, two-thirds split between the interim and final dividend,” suggesting that Tesco will pay a final dividend of approximately 2p this year. A full-year payout of 3p equates to a dividend yield of just 1.6% at the current share price. 

City analysts currently forecast a higher dividend payout of 5.29p for next year, a yield of 2.8%, however, that’s still a little underwhelming in my view, when you consider the yields on offer from many other FTSE 100 companies. As a result, I won’t be rushing to buy Tesco shares for the dividend any time soon.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Edward Sheldon has no position in any shares mention. The Motley Fool UK has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.