2014 has been a dismal year for investors in Morrisons (LSE: MRW). That?s because shares in the northern-focused supermarket have tumbled by 39% since the start of the year, as its core customers have responded to tight budgets and switched to no-frills operators such as Aldi and Lidl.
Indeed, the future looks bleak for the company. Its bottom line is due to fall by over 50% in the current year and its dividend is set to be cut this year. Life as a Morrisons…
2014 has been a dismal year for investors in Morrisons (LSE: MRW). That’s because shares in the northern-focused supermarket have tumbled by 39% since the start of the year, as its core customers have responded to tight budgets and switched to no-frills operators such as Aldi and Lidl.
Indeed, the future looks bleak for the company. Its bottom line is due to fall by over 50% in the current year and its dividend is set to be cut this year. Life as a Morrisons shareholder is tough.
However, looking further ahead, the company could have significant potential as an investment. Moreover, it could boost your long-term returns and help you to retire rich. Here’s how.
A Shift In Strategy
While most of Morrisons’ rivals have embraced online grocery shopping and the transition away from large supermarkets towards convenience stores, it has failed to move with the times. Indeed, until this year, Morrisons had no online grocery offering and only a handful of convenience stores. This has put its sales growth under severe pressure, since online and convenience stores have been the only growth areas for supermarkets in recent years.
However, although late to the party, Morrisons is nevertheless arriving. For example, it is expanding its convenience store estate at a rapid rate and expects to have hundreds of them open within months. This is key to the company’s development because it allows Morrisons to expand its estate footprint outside of the north of England. This could prove to be crucial, since disposable incomes are, on average, higher in the south east of England – an area that the company is targeting to deliver improved sales growth moving forward.
Furthermore, Morrisons is also rolling out an online grocery shopping service. Although it will not have a major impact upon the bottom line in the short run, it could help to stimulate growth over the medium term and allow the company to compete more successfully with its sector rivals.
Clearly, holding Morrisons shares during 2014 has been a challenging experience. However, they now trade at a price which appears to scream value, with shares in the company now changing hands for less than net asset value. Furthermore, with a dividend yield of 6.6% (using next year’s lower dividend), there seems to be strong income potential on offer.
Inevitably, there will be further lumps and bumps ahead for Morrisons. After all, it is facing the most challenging period in the history of the UK supermarket sector. However, with a new strategy that appears to be sound, a share price that is dirt cheap, and a dividend yield that is higher than anything else in the FTSE 100, it could prove to be a great long-term buy that helps you to retire rich.
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Peter Stephens owns shares of Morrisons. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.