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As the Morrisons share price dips, here’s why I’d buy right now

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Morrisons (LSE: MRW) has joined the list of companies creating new jobs in the wake of the Covid-19 pandemic. Tesco had earlier announced new hirings, as demand for home deliveries has increased massively. And now Morrisons is hiring new permanent staff too. And, like Tesco, the Morrisons share price is proving resilient in 2020, down just 5%.

Grocery sales climbed nicely in the first half, with a like-for-like figure up 8.7%, excluding fuel and VAT. A collapse in the demand for fuel wiped that out though, and had an impact on cash flow. The firm saw free cash outflow of £228m, compared to an inflow of £244m the year previously.

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Covid-19 costs hit profits too, with statutory profit before tax down 28.2% and EPS down 26.2%. But Morrisons lifted its interim dividend by 5.7%, “reflecting the strong first-half trading performance and our confident outlook.” Does that make it a buy?

Morrisons share price

It’s hard to say whether that decision had any positive impact on the Morrisons share price on the day, as it’s down 3% at the time of writing. But I suspect it’s helped a little, as the profit fall was pretty hefty and will have created uncertainty that’s sure to have caused some investor discomfort.

I’m encouraged by the hike in the dividend. I’d really only been expecting something in line with inflation, or maybe even flat.

The company had been anticipating paying a further special dividend for the second half of 2019-20. But that was put on hold when Covid-19 struck. Any decisions on that are to remain deferred due to the ongoing uncertainty, and I think that’s prudent.

But what does all this say about the long-term outlook for for the Morrisons share price? The pandemic has created havoc for many businesses, but we’re clearly seeing a positive move in online groceries shopping. And it’s surely not just temporary.

Morrisons chief executive David Potts went as far as to say: “I believe we are seeing the renaissance of British supermarkets.” I think he’s right.

Major shopping shift

Many people have tried getting their shopping online for the first time in their lives. And you know what? They like it. It surely wasn’t preference that had people driving to the supermarket, traipsing round the aisles, hefting their bulky shopping into the car, then unloading again when they got back home. It was inertia.

And now that folks have learned the joys of clicking a few buttons and having their stuff brought to their doorsteps, I can’t see many going back to the old ways.

I’d been bearish on UK supermarket shares, including Morrisons and Tesco. That was because of the onslaught of Lidl and Aldi and their cheaper prices. I just couldn’t see how they could hold back the breakneck pace of store openings.

But we’ve had what many people would call a paradigm shift. And Lidl and Aldi are just not part of the new paradigm.

The Morrisons share price suggests a P/E heading for around 14 based on forecasts, with a predicted dividend yield of about 3.9%. And at Tesco we’re looking at similar valuations.

I’d buy UK supermarket shares now. I’d buy Tesco. And I’d buy Morrisons.

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Alan Oscroft 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.

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