The Tesco (LSE: TSCO) share price has surged in 2024. Year to date, the stock is up 24.1%. In the last six months, it’s also been gaining serious momentum, rising 23.9%.
That means the retail behemoth has now delivered shareholders a 35.4% return over the last 12 months. For comparison, the FTSE 100 is up 8.8% during the same period.
I don’t currently own any Tesco shares. However, it’s a stock I very much like the look of. If I had the investable cash, I’d like to buy some shares today. I’ll explain why.
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Income on offer
There are a few reasons. But as an investor who loves to target stocks that can provide stable passive income, it makes sense to start with its dividend yield.
It currently sits at 3.2%. In all fairness, that’s below the FTSE 100 average of 3.6%. However, I reckon we could see its payout rise in the years ahead.
First, its dividend is covered over two times by earnings, which is always a good sign. That’s probably why we saw the firm up its payout last year by 11% to 12.1p per share.
In tandem with that hike, the firm also completed £750m worth of share buybacks in 2023. Looking ahead, the retailer has committed to buying back up to £1bn worth of shares by April 2025.
A big slice
Then there’s its position as the market leader. With a 27.7% share, Tesco has the biggest slice of the market by some margin. Its nearest rival is Sainsbury’s with 15.3%. Taking the third spot is Asda with 12.6%.
That dominant position gives it an edge over its competitors. Not only does Tesco have incredibly powerful brand recognition, but there are other benefits, such as economies of scale.
The rise of budget competitors
That said, I can’t ignore the rise of budget competitors such as Aldi and Lidl. That’s the largest threat I see to Tesco right now.
In recent years, they’ve become more popular than ever, which has been largely fuelled by the cost-of-living crisis. With consumers on the hunt for the best deals, it’s natural they’ve been shopping around for the cheapest prices.
Even after its rise, Aldi has no plans of slowing down just yet. Last year, the firm committed to a long-term target of opening 500 new stores across the UK.
More to give
Yet despite that threat, I’m still bullish on Tesco. It has taken some measures to counteract the rise of the German outfits. For example, it has its Aldi price match scheme, which now includes around 700 items.
Additionally, I’m a big fan of its Clubcard programme. It’s an effective way to retain customers and the programme now has nearly 22m users. Tesco’s profits soared by 159% last year. The firm cited its Clubcard strategy as one of the core reasons for the rise.
With that, despite the challenges it may face through competition, I’m backing Tesco to keep performing. I think it would make a shrewd addition to my holdings. While its share price has been flying, I think the stock has more to give.
