A 5% yield? Here’s the dividend forecast for Tesco shares through to 2027

Tesco shares have had a good year and the company looks on track to continue increasing dividends, with a potential yield above 5% in a few years.

| More on:

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.

Image source: Tesco plc

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Tesco (LSE: TSCO) shares have done well in 2024, up 18%. However, they’ve been on a bit of a downer since September. That makes me wonder if this dip is temporary, and how it may affect dividends going forward.

For now, the mild dip doesn’t appear to have dented the company’s dividend plan. This year’s final dividend is expected to be around 13p per share, forecast to rise to 15p by 2027.

With that growth, the yield’s forecast to reach 4.48% by 2026. If that continues, it could climb above 5% by 2027. 

Should you invest £1,000 in Burberry Group Plc 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 Burberry Group Plc made the list?

See the 6 stocks

That would certainly add to the stock’s already attractive nature as a regular income earner.

Year:2023202420252026
Dividend per Share:0.1210.13260.14370.1549
Yield forecast:4.33%3.84%4.16%4.48%

Moderate growth potential

The above forecast assumes the company can continue performing well or increase its payout ratio. It managed to do so in both 2020 and 2022, and again this year, but growth has been sporadic. Whether or not it can keep increasing dividends may depend on its revenue and earnings.

There seems to be some expectation of steady but moderate growth in those areas.

Revenue fell short of estimates in 2023 but is forecast to grow steadily in the coming years. It’s expected to reach almost £74bn by 2027, with earnings per share (EPS) expected to climb 20% to around 33p.

The average 12-month price forecast is £3.99, a 15.5% increase from today. However, analysts aren’t in close agreement, with the most optimistic eyeing £4.45 and the most bearish looking at £2.70.

Still, it’s positive overall.

Pros and cons

Tesco remains one of the most popular grocery chains in the UK, driven by competitive pricing and widespread appeal. It offers attractive price-matching with its Clubcard membership to compete with more budget chains. On the higher end, it competes with grocers like Marks and Spencer with its Tesco Finest premium goods.

With inflation putting strain on budgets this year, sales in its Finest range have enjoyed impressive growth of 15%.

However, there are also factors that could limit growth. The recent UK Budget’s increase in national insurance (NI) contributions will start next April. With Tesco employing over 300,000 people, the cost is estimated to be £1bn over four years.

It may have to pass this cost on to customers, impinging on its low-cost model and threatening its market share. Of course, the increase would affect all UK businesses but Tesco’s particularly exposed due to its size. 

The bottom line

Tesco dividends have had a bumpy ride since Covid but with inflation falling, things seem to be back on track. The steady and moderate growth exemplifies the stock’s defensive nature, offering the potential for consistent and reliable income.

The new budgetary measures are a risk but I see no immediate threat to Tesco’s dividends. I think the stock’s worth considering for an income portfolio. I increased my position in Tesco this year and will likely do so again in the new year.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Mark Hartley has positions in Marks And Spencer Group Plc and Tesco Plc. The Motley Fool UK has recommended 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

£10,000 invested in Aston Martin shares at Christmas is now worth…

Aston Martin shares have fallen from above £10 in early 2020 to pennies today. Is this the perfect time for…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Up 5% in the last crazy week! Are these 2 income stocks the ultimate FTSE defensive plays?

Harvey Jones picks out two FTSE 100 dividend income stocks that have actually climbed while stock markets are heading in…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

2 beaten-down UK shares that now look really cheap

Looking for cheap shares to consider for the long term? These two British stocks offer a lot of value right…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

As stocks tank, is this a rare chance for ISA investors to get rich?

Shares have collapsed globally and valuations are becoming, on paper at least, a lot more attractive. Dr James Fox explores…

Read more »

Investing Articles

2 strong FTSE 100 dividend shares to consider as recessionary risks increase

Looking for secure passive income stocks to consider buying as thumping trade tariffs loom? Here are two FTSE 100 dividend…

Read more »

Investing Articles

Can Greggs shares offer shelter from Trump’s tariff chaos?

Greggs' shares have plummeted in recent months. But with very little exposure to the US or tariffs, could the stock…

Read more »