Should you check out Tesco shares?
TESCO is one of those shares that investors and customers used to buy and hold, because, like the banks and Marks & Spencer, it was safe and reliable. The grocer had an enviable reputation, results improved year by year and the dividend provided decent income. Then everything changed.
Between 1990 and 2007, Tesco shares rose from 62p to £4.95. By 2015, they had fallen to below £1.50, hit by an accounting scandal, a series of poor management decisions and intense competition from rivals, particularly Aldi and Lidl. The company fell into loss and even stopped paying dividends, while chief executive Dave Lewis tried to put the business back on its feet.
On Friday, the shares closed at £2.37, having fallen earlier in the week when Lewis said he would be standing down i n 2020. Lewis announced his departure alongside half- year results to August 31, which included stable sales, rising profits and an eye-catching 59 per cent increase in the interim dividend to 2.65p.
Looking ahead to the full year, brokers expect a slight increase in turnover to £64.7 billion, a robust rise in profits to £1.9 billion and a dividend of about 8p, compared to 5.77p in the 2019 financial year.
The group is certainly in a much better position than when Lewis joined and there are enthusiastic plans for growth, such as new Express stores here and in Thail and, i ncreased i nvestment in online shopping and even four new superstores. In line with current trends, Tesco is introducing more plant-based products and cutting back on plastics waste. The merger with wholesaler Booker is yielding results too, as it works with thousands of independent corner shops, pubs and restaurants.
Yet life on the shop floor remains a constant challenge, as Lewis’s designated successor Ken Murphy will doubtless discover, when he moves over from Walgreen Boots Alliance, the chemist chain.
Discounters, Morrisons and Sainsbury’s are snapping at Tesco’s heels, price wars are a fact of life, consumers are increasingly demanding and economic uncertainty does not help. Then there is some disquiet about why Lewis has chosen to leave now: should investors follow him?