Dividend has now been raised to almost double last year’s pay-out.
Tesco defies pressure from discount retailers in latest results
- Core strategy remains strong as Tesco beats market expectations with strong results, the shares remain a ‘low to medium risk’ hold.
- Increasing profit margins and effective cost reductions have allowed Tesco to raise dividend by almost double from the previous year.
- Defensive element to shares should be seen as a positive to investors during uncertain economic times.
Tesco beat market expectations with its full-year results today and the benefits of its restructuring programme are flowing through into a big boost for investors in the form of dividend increases. Revenue and pre-tax profit increased by 11% and 29% respectively, partly thanks to a strong 1.7% increase in like-for-like sales in the UK. The company’s recovery mirrors that of the wider food retail sector supported by the latest Profit Watch UK data showing a 28.2% rise in profit in the last quarter of 2018.
Cost savings appear to be paying off
Tesco’s effort to reduce costs was evident with its profit margin rising to 3.96% in the second half of the year, up from 3.45% in the first six months. All of this enabled the company to raise dividends to 5.77p, almost double last year’s pay-out.
Given the good figures it was no surprise to see the shares rise 1.5% in early trading, despite having already comfortably outperformed the market so far this year. The performance is really a validation of the strategy adopted four years ago by CEO Dave Lewis and comes as the company faces strong competition from discounters Aldi and Lidl.
Our View on Tesco - Hold
The fact that the Sainsbury’s/Asda merger now seems unlikely to go ahead provides another boost and the defensive element to the shares should be viewed as a positive with so much economic uncertainty. The shares remain a low to medium risk ‘hold’.
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