Tesco (LSE: TSCO) shares have enjoyed impressive growth recently. They’re up 9.2% in 2024 and 27.1% over the last 12 months. That’s not bad considering the FTSE 100 has returned 3.8% and 6.1% during the same periods.
I’ve been keeping a close eye on the Tesco share price. The stock’s been on my watchlist for some time and now at 321.2p, I think I could be ready to pounce.
Here are three reasons I’m eager to add the stock to my portfolio today.
Should you invest £1,000 in NatWest Group right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool 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 NatWest Group made the list?
Defensive in nature
I like Tesco because it’s a defensive stock. The products it provides are essential goods. Every day people need to eat food and drink.
With that comes benefits. For example, while some businesses see demand rise and fall in cycles, Tesco tends to see steady demand for its services regardless of external factors.
Take the first quarter as an example. During that time, we endured ongoing economic uncertainty surrounding interest rates and inflation. But even with that, Tesco still delivered a 3.6% growth in its sales, including a 5% rise in food sales.
Top of the pile
Not only does Tesco operate in an industry that provides essential goods that are in constant demand, but it’s also the market leader by some distance.
It has a 27.7% market share. The closest competitor is Sainsbury’s with 15.3%. In third is Asda with 12.7%. Aldi takes fourth place with a 10% slice.
Its position at the top of the pile gives it a few advantages. Firstly, Tesco has incredibly strong brand recognition. It comes with other benefits too, such as economies of scale.
That said, Aldi’s position as fourth is evidence of the rise in budget competitors that pose a threat to Tesco. Aldi and Lidl have made good ground in recent years and have been aggressively stealing customers.
That’s been further fuelled by the cost-of-living crisis, which has forced consumers to shop around.
Aldi has now overtaken Morrisons, which has an 8.7% market share. Lidl isn’t too far behind Morrisons at 8.1%.
Passive income
Operating in a defensive industry also means the business tends to have steady revenue and cash flows. That’s great when it comes to rewarding shareholders with a dividend.
Tesco stock has a yield of 3.8%. That sits just above the FTSE 100 average. Last year its payout jumped 11% to 12.1p per share. It also purchased £750m worth of share buybacks.
I’d love to buy
I’m watching the rise of budget competitors, Aldi in particular, like a hawk. I think they’re a real threat. However, even with that considered, I still like the look of Tesco shares today.
In its latest update, it highlighted how the business was “the most competitive we’ve ever been”. It attributed that as to why its market share has grown more than any other time over the past couple of years.
If I had the spare cash today, I’d snap up Tesco shares. I reckon their defensive nature, its dominant market position, as well as the income on offer, would make it a great addition to my portfolio.
