I’d buy and hold Tesco shares for the next 10 years

Tesco shares could provide investors with a steady return over the next 10 years as the retailer builds on its position in the market.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Peanut butter on bread slice shot on rustic wooden table

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I think only a few companies are worth buying and holding for the next 10 years. However, I believe Tesco (LSE: TSCO) shares fall into this bracket. And today, I’m going to explain why I’d purchase the stock for my buy-and-hold portfolio.

Slow and steady

The problem with picking shares to own for the next 10 years is that it’s impossible to tell the future. We don’t know what the world will look like a decade from now and which companies or technologies will exist. 

This is by far the most significant challenge all companies face. No industry is exempt. For example, 10 years ago, Arcadia was one of the most successful retailers in the world. Today what’s left of it has been carved up after it collapsed last year. Arcadia’s mistake was missing out on the online retail revolution.

At the same time, oil producers such as Tullow Oil have been wrong-footed by the falling price of oil. New technologies have allowed companies to extract oil faster and in previously uneconomic regions. 

Tesco fruit and veg

Food and drink retailing is not immune to change, but it’s insulated to a certain extent. Consumers will always need to eat and drink, so the market will always be there. Therefore, companies that can deliver products to where consumers want them at the lowest costs should have a guaranteed market. Tesco has been supplying food and drink to UK consumers for decades. Today, it’s the largest retailer in the UK, with a virtually unrivalled distribution and store network.

As long as the company continues to invest in its store network and distribution system, I think it should stay on top. This suggests the outlook for Tesco shares is favourable in the long-run.

That said, food and drink isn’t a rapid growth market. As such, I’m not expecting Tesco to generate market-smashing returns year after year. Instead, I think the company could be a great addition to my portfolio as a slow and steady income play.

Buying Tesco shares

Based on the qualities outlined above, I’d buy Tesco as an income investment. The stock is set to support a dividend yield of 3.8% in 2021, rising to 4.7% in 2022.

Of course, these are just projections at this stage. There’s no guarantee the corporation will hit these targets. Still, I think the projections show the company’s potential as an income investment. 

That’s not to say the company doesn’t face challenges. As well as the hurdles outlined above, the businesses may also face problems if costs rise substantially. That would put pressure on profit margins and may limit its ability to return cash to investors. 

Despite these risks, considering the company’s defensive nature, I believe Tesco shares are one of the best income plays to buy right now for the long term. I think the stock is unlikely to generate outstanding returns, but it’s also unlikely to produce significant losses, in my opinion. That’s why I’d buy the corporation today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »