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supermarket chain Tesco (LSE: TSCO) is popular FTSE100 Stocks held by many individual investors. However, some may have been disappointed by the stock’s performance over the years.
In 2012 the stock was over 400 pence. So today’s price around 259p represents a drop of just over 35%. And it’s not the type of long-term performance that investors expect from their stock holdings. After all, if the underlying business is stable, most stock prices will simply keep pace with price inflation, yielding higher earnings and profits.
Past operational issues
But Tesco’s business is not stable. In fact, it has endured many operational problems over the past decade or so. For example, we have exited many of our international operations. And it dropped the ball regarding the UK domestic market, leading to a plunge in profits and loss of market share.
Even today, the business operates in a highly competitive market, with ongoing threats to market share from lean players such as Aldi, Lidl. But to be fair, the company has been doing pretty well lately. And after recovering from last fall’s lows, the stock has fallen only about 5% over the past year.
But it will take some effort to bring the stock back to 400 pence. And the signs don’t look too promising right now. it’s earnings. But Citi analysts are less optimistic, predicting a 13% decline in the trading year that just ended in February. And they expect results for the current trading year to be just below flat.
And the outlook for shareholder dividends doesn’t get any better. These analysts expect a low-single-digit decline. And that means Tesco failed one of my tests for dividend-driven investments. I would like to have
Maintain market share
Meanwhile, the future dividend yield is just over 4% in the current trading year. But I’ve always said I want at least a 5% yield from Tesco to compensate for the risk of owning the stock. After all, Tesco is a high-turnover, low-margin company operating in a tough market while heavily indebted. As such, I see the company’s earnings and dividends could easily be hurt if market conditions change slightly.
However, there are also positives. In January, Tesco properly rounded up its third quarter figures covering the Christmas period.And the director said the business has maintained “strong” 27.5% market share. But on top of that, Tesco was the only full-line grocery store to grow its market share compared to pre-pandemic figures.
The company is also committed to repurchase Own stock. And that habit could work to push the stock price up over time.
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