Whenever I check out the Tesco (LSE: TSCO) share price, I’m impressed. The UK’s biggest grocer has doubled in value over the last five years. That’s the kind of return I’d hope for from a nippy growth stock, not a FTSE 100 blue chip.
It wasn’t always this way. A decade ago, Tesco’s global ambitions came unstuck under former boss Philip Clarke, whose tenure ended in 2014 amid profit warnings and accounting issues. German discounters Aldi and Lidl were devouring market share. Many thought Britain’s biggest grocer had lost its crown for good.
Yet, Tesco fought back. Today, it holds a commanding 28.4% of the grocery market, according to Kantar. Sainsbury’s trails far behind at 15.1%, while Aldi (10.7%) and Lidl (8.2%) remain in a lower league. Tesco is once again number one and the shares are still rising, up 25% over the last year.
Let the income roll
It’s also been a solid income stock. In 2025, the dividend per share was hiked 13.3% to 13.7p. That followed an 11.1% rise the year before. Yet, further back, payouts were bumpy. Dividends were frozen at 14.76p in 2013 and 2014, under Clarke, and investors didn’t get a penny in 2016 and 2017, as new broom Sir David Lewis focused on righting the ship.
On 2 October, Tesco lifted full-year guidance after a strong first half helped by good summer weather. Group sales excluding VAT and fuel rose 5.1% to £33.05bn, while adjusted operating profit climbed 1.5% to £1.67bn.
Today’s CEO, Ken Murphy, highlighted Tesco’s focus on value and service, while a savings programme offset cost inflation and higher employer’s National Insurance (NI) contributions. The group now expects full-year adjusted operating profit of £2.9bn to £3.1bn, up from previous guidance of £2.7bn to £3.0bn.
Growth could slow
That’s all encouraging, but competition remains fierce. Asda is reportedly preparing a price war, which will eat into Tesco’s margins, already tight at around 3.5%. The cost-of-living crisis still weighs on shoppers, and Tesco has to shoulder the recurring impact of the higher minimum wage and employer’s NI costs, as the UK’s largest private-sector employer with more than 300,000 staff.
Analysts expect modest progress from here. Consensus one-year forecasts suggest a median share price target of 471.7p, implying a 5.64% gain from current levels. Add a forecast yield of 3.21%, and that gives a potential total return of around 8.85%.
If that proves accurate, £10,000 invested today could be worth roughly £10,885 in a year’s time. That’s decent going for a defensive stock, but disappointing compared to recent successes. The shares now trade on a price-to-earnings ratio of 16.6. No longer a bargain, although not exactly overpriced for a company with dependable earnings, steady cash flow, and a dominant market position.
Long-term value
Tesco shares are still worth considering, but investors have to accept that the growth is likely to slow down from here. So I would only buy with a minimum five-year view, to give the income and growth time to compound. Tesco may struggle to repeat recent heroics but every little helps.
