3 Reasons To Stick Tesco PLC In Your Trolley


In recent days I have looked at why I believe Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) is at risk of a heavy collapse (the original article can be viewed here).

But, of course, the world of investing is never black-and-white business — it take a confluence of views to make a market, and the actual stock price is the only indisputable factor therein. With this in mind I have laid out the key factors that could, in fact, make Tesco a savvy stock selection.

Online market ripe with opportunity

Tesco has been operating in the internet marketplace for almost two decades, and with sales of over £2.5bn in fiscal 2013 alone the company knows the importance of bolstering its multichannel sales approach.

The retailer saw internet sales leap 13% during February-August, and is rolling out a number of initiatives to stay ahead of the pack in this increasingly competitive market. From slashing delivery charges and increasing the number of its Click & Collect depots, through to more revolutionary measures like permitting customers to scan and pay for products using their mobile phones, the company is pulling out all the stops to keep online growth galloping along.

More international withdrawals imminent

Without doubt Tesco’s expansion plans in foreign climes have proved nothing short of a disaster, and the firm continues to witness prolonged weakness in these markets. In Asia, like-for-like sales slipped 5.1% during September-November, while in Europe underlying revenues dipped 4%.

So news that the company is planning to follow up scalebacks in Japan, the United States and China with restructuring in Turkey should be music to the ears of investors. Tesco is apparently considering merging its assets with those of Turkish chain Migros, allowing the supermarket to further cut its exposure to underperforming geographies and boost its fresh UK-centric approach.

Dividends expected to head higher

Tesco has been forced to curtail its progressive dividend policy due to the onset of heavy earnings pressure. And the company is expected to keep the full-year dividend on hold for the years concluding February 2014 and 2015, at 14.76p per share, a scenario which would represent four straight years of no dividend growth.

However, the supermarket is anticipated to get dividends rolling again in 2016 with a 3% hike to 15.2p, in line with a return to earnings growth.

And although the retailer is expected to keep dividends on hold in the immediate future, yields through fiscal 2015 still register at a respectable 4.5%, comfortably ahead of the 3.1% FTSE 100 forward average. And 2016’s anticipated dividend uptick takes this to 4.6%.

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> Royston does not own shares in Tesco. The Motley Fool owns shares in Tesco.