Why Wm. Morrison Supermarkets plc Is One Of My Favourite Stocks

I’ve always been the kind of Fool to prefer profit over sharing. Some may agree with this, others may disagree but that’s the kind of Fool I am.

For instance, I’ve never felt entirely comfortable with the idea of a mutual such as John Lewis or the Co-Op. I believe that the pursuit of profit is what pushes people onto a level they would not otherwise achieve and, while doing good and helping others are admirable causes, I think that capitalism and the pursuit of profit is the best system for improving people’s lives in the long run.

So, I was surprised to read that John Lewis has paid out around £40 million to staff after it made an error with holiday pay. Indeed, it appears as though John Lewis had been miscalculating holiday pay for around seven years, with about 70,000 employees from its department stores and Waitrose set to receive payouts.

Of course, there is no suggestion that this is anything other than an error, but the whole episode did get me thinking about business and made me realise that Wm Morrison Supermarkets (LSE: MRW)  remains one of my top picks.

The main reason for my liking for Morrisons is that, in the search for higher profits, it is adapting to the current trading environment.

We all know that being a supermarket is tough at the moment. Top-line growth is extremely difficult to come by, with like-for-like sales being consistently negative and a lack of demand for new, large stores being challenges that supermarkets such as Morrisons are finding difficult to overcome.

However, the company is becoming more efficient; cutting costs and improving its supply chain so that discounts designed to generate sales do not hurt margins too much.

Furthermore, Morrisons is reducing its focus on the north of England through opening 100-plus convenience stores — many of which are in the south of England where disposable incomes are (on average) higher than elsewhere in the UK.

Then there is the consistency that Morrisons offers. It has increased its dividend per share in each year of the last ten years or so and, over time, this track record has provided investors such as me with a generous income. With the shares currently yielding 4.1%, they beat current levels of inflation.

Furthermore, shares in Morrisons are currently cheap on a profit basis in my opinion. They trade on a price to earnings (P/E) ratio of just 10.7, which compares well to the FTSE 100 on 14.6 and to the wider consumer services industry group on 16.7.

Of course, you may be looking outside of the supermarket sector for an addition to your portfolio. If you are, The Motley Fool has come up with a shortlist of its best ideas called 5 Shares You Can Retire On.

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> Peter owns shares in Wm Morrison Supermarkets. The Motley Fool has recommended shares in Wm. Morrison Supermarkets.