The Tesco share price held firm during the stock market crash, as investors saw the value of grocers as an essential service. It’s up today, after reporting 8% total sales growth in the first quarter, with a massive surge in online sales. If I had £1k to invest, or a similar sum, I’d be looking at buying Tesco (LSE: TSCO) today.
Top FTSE 100 stocks like the UK’s biggest grocer are a great way to build your wealth as returns on cash. The Tesco share price has recovered strongly since former boss Philip Clarke’s disastrous tenure. It’s up 35% in just three years, as Clarke’s successor, Dave Lewis, did a solid job.
Unlike many FTSE 100 stocks right now, the Tesco share price comes with a healthy rate of income. The current dividend yield is 4%. That’s hugely attractive, with the average easy-access account paying just 0.26%, according to Moneyfacts.
The payout also looks solid, and I’d buy Tesco for that reason alone. With luck, you’ll get share price growth as well, in the longer run.
The big problem with the grocery industry is competition. Tesco, Sainsbury’s, Morrisons and Waitrose aren’t just battling each other, but German discounters Aldi and Lidl. Margins are wafer thin. Tesco has fought back well, with its ‘Aldi Price Match’. Customers are making the switch back for the first time in a decade, or more.
I’d buy into the Tesco share price
The lockdown worked in favour of Tesco, as online sales jumped an incredible 48.5% in the quarter. That doesn’t necessarily translate into profits though. Costs rose sharply, as it took on 47,000 extra members of staff to meet demand. Full-year underlying retail operating profit looks set to be flat.
Tesco Bank will also have to allow for increased bad debts as the recession takes its toll. It anticipates a loss of £175m-£200m.
The Tesco share price is up slightly, at time of writing. Investors are impressed by the way it adapted to the demands of the lockdown, doubling capacity in just five weeks. Online sales jumped from 9% to 16% of total UK sales.
This is good news as the trend towards online shopping is likely to continue. Britons are shopping less often, to reduce physical interactions, but buying more when they venture out. That hands Tesco the edge over the German discounters, because of its wider range of household goods.
The Tesco share price still faces plenty of headwinds. Shopping habits may change again, as social distancing rules are eased. Customer loyalty is thin on the ground these days. On the other hand, it’s shown flexibility to meet sudden changes in demand, which must hold it in good stead.
Better still, there’s that dividend. Tesco doesn’t face the same political pressure to cut shareholder payouts as, say, the big banks.
Lewis leaves on 30 September and his successor will have a job matching his leadership. Despite that, I still believe the Tesco share price is a long-term buy today.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.