If I’d invested £1,000 in Tesco shares at the start of 2023, here’s what I’d have now

Tesco shares are beating the market by more than 20%! But can this upward momentum continue in 2024 and beyond? Zaven Boyrazian investigates.

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Tesco (LSE:TSCO) shares are among some of the most popular stocks to own in the UK. As a member of Britain’s flagship index, the retailer plays a role in many portfolios, including institutional ones.

This popularity is pretty understandable. After all, it controls the lion’s share of the British grocery market. And since everyone needs to eat, demand for its services is unlikely to disappear anytime soon.

Over the last couple of years, the stock hasn’t exactly been a stellar performer. That’s not surprising, given the stock market decided to throw a tantrum in late 2021. But with UK shares starting to make a comeback last year, valuations have been rising. And Tesco’s market capitalisation was no exception.

So if I had bought £1,000 worth of Tesco shares at the start of 2023, how much money would I have now? And is it too late to buy? Let’s explore.

Crunching the numbers

When the markets opened for the first time on 3 January 2023, Tesco’s share price stood at 225.4p. Today, it’s now around 283.7p. So in terms of share price growth, investors have reaped a 25.9% return. But lets not forget, the company also pays a dividend.

Ignoring transaction fees, investing £1,000 at 225.4p would land me with around 443 shares. Since then, the company has paid a dividend twice, 7.05p in June 2023 and another 3.85p in November. That works out to a total of £48.29 in dividends, which is equivalent to an extra 4.8% gain, bringing the total return on investment to 30.7%.

Needless to say, that’s a pretty impressive gain. By comparison, the FTSE 100 has only mustered around a 7% return over the same period. In terms of money, that’s the difference between having £1,307 and £1,070. Therefore, snapping up Tesco shares at the start of 2023 would have been an excellent move. But is it too late to buy more today?

Still a good buy?

Looking at the group’s latest quarterly update, investors weren’t disappointed. Like-for-like sales grew by a solid 6.8%, with Tesco’s Finest range proving exceptionally popular over the Christmas period, up by 16.7%.

While neither are particularly explosive levels of growth, it’s a fairly impressive sight for a company as large and mature as Tesco. This is especially true considering Sainsbury’s performance over the same period was far more lacklustre.

A closer inspection reveals that sales volumes are largely responsible for this upward trajectory rather than price hikes. In fact, with competition from the likes of Aldi and Lidl heating up, management has had to cut prices on 2,700 of its products. This move continues to remind investors that while it’s an industry leader, Tesco still has to fight for its position.

Overall, the firm raised its profit guidance for the full year. And with the subsequent announcement that Tesco is disposing of its banking division to Barclays, the group’s balance sheet may also be in for an upgrade as it removes around £7.7bn of capital-intensive assets and £6.7bn of liabilities from its books.

With that in mind, if I were looking to add some stability to my portfolio, Tesco shares look like they could be a good fit. At least, that’s what I think.

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.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc and Tesco Plc. 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.

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