As I write Tesco (TSCO.L) is trading at 313p. TSCO is the 4th largest retailer by sales volume worldwide. As a pure supermarket play it is the world’s largest. It has increased its dividend every year for the past 27yrs. With the market’s knee jerk reaction to disappointing UK Christmas sales the stock has lost > 18% of its market value from Wed 11 close.
TSCO’s profit warning represents a major buy opportunity.
Based on the 2011 payout of 14.46p this gives a current yield of 4.6% – 50% higher than the 5yr average of 2.99%. In fact this yield had not been available on TSCO in > 20 yrs. TSCO has a payout ratio of 40%, so there is plenty of room for management to maintain/increase the dividend. However, there is plenty of short term noise to ignore in your quest for quality dividend growth:
“Tesco had got too clever,” said Tim Green at Brewin Dolphin Holdings Plc in London,
“The company took its eye off the ball in the U.K.” – Shore Capital.
One bad Christmas season in the UK will not throw this global giant off course. They have economies of scale and size necessary to grow their brand. Fully one third of their sales are outside the UK, and that margin will increase. TSCO’s biggest shareholder Berkshire Hathaway raised their stake in Sept 2011, and have gone on record that they will buy more on price weakness.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” – Warren Buffett
Accumulate at current prices. Buy more on further weakness.
At 289p that would yield 5%, again based on 2011 payout.