Is Tesco PLC (LON:TSCO) A Smart Pick For Income Investors?
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Over the past 10 years, Tesco PLC (LSE:TSCO) has returned an average of 3.00% per year to shareholders in terms of dividend yield. Does Tesco tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Tesco
5 checks you should use to assess a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is it the top 25% annual dividend yield payer?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has it increased its dividend per share amount over the past?
Is it able to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
How well does Tesco fit our criteria?
The company currently pays out 24.74% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect TSCO’s payout to increase to 47.52% of its earnings, which leads to a dividend yield of around 2.95%. In addition to this, EPS should increase to £0.13. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from Tesco fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves. Compared to its peers, Tesco generates a yield of 1.67%, which is on the low-side for Consumer Retailing stocks.
Next Steps:
If you are building an income portfolio, then Tesco is a complicated choice since it has some positive aspects as well as negative ones. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three essential factors you should further research:
Future Outlook: What are well-informed industry analysts predicting for TSCO’s future growth? Take a look at our free research report of analyst consensus for TSCO’s outlook.
Valuation: What is TSCO worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TSCO is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
