Image source: Getty Images
Nobody could tell how politically and economically turbulent the last five years have been by looking at the Tesco (LSE: TSCO) share price. It’s a picture of serene upwards progression, climbing 90% over five years, 60% over three and 30% in the last 12 months.
Tesco isn’t chasing global domination anymore, and that may be its biggest strength. Instead, it’s primarily intent on bossing the domestic grocery market, and it’s making a good job of it.
Exemplary FTSE 100 stock
2024 results, published in April, showed like-for-like sales across the UK and Ireland up 4%, while operating profit climbed 10.9% to £3.13bn, and earnings per share jumped 17% to 27.38p.
Those strong numbers carried into Tesco’s Q1 trading update, published on 12 June. Group sales rose 4.6% to £16.38bn, with UK sales climbing 5.1% to £12.3bn. Market share’s up again too, rising 44 basis points to 28%. Food and non-food both made gains, while online sales surged 11.5%.
Dividends keep growing
Tesco’s consistent dividend hikes are another big attraction. The full-year payout rose 13.22% to 13.7p in 2025, after an 11% increase the year before. The yield currently stands at 3.26%, a little below the FTSE 100 average but only because the share price has raced ahead.
Forecasts suggest slower dividend growth next year, with a 1.5% rise to 13.9p, then 8.6% in 2027. Tesco doesn’t always lift its payout in a straight line, but it tends to move in the right direction over time. It’s also handing back cash through share buybacks. Since October 2021, Tesco has repurchased £2.8bn of shares.
That’s shareholder-friendly behaviour. These buybacks reflect confidence in the company’s ability to generate strong future cash flows.
Narrow margins
Supermarkets operate on tight margins, and Tesco’s are no exception at 3.9%. With employer’s National Insurance rising in April, along with a big hike in the Minimum Wage, those margins will remain thin. The Asda-driven price war won’t help.
Analysts are projecting that profits will hold steady, but not surge. The current price-to-earnings ratio’s 15.35, which looks fair value rather than priced to go. The balance sheet is solid and net debt fell 2.4% to £9.45bn last year. But with inflation still sticky and the cost-of-living crisis dragging on, there’s plenty of room for short-term volatility.
Analyst sentiment remains strong
So can the shares climb another 30% this year? I’d say that looks unlikely, and I’m not alone. The 13 analysts with one-year forecasts have pencilled in a median target of 422.9p, around 0.7% above today’s 420p. That’s quite a slowdown although, as ever, forecasts aren’t set in stone. Estimates range from 360p to 470p.
So investors shouldn’t assume they can still hop on the Tesco gravy train and enjoy further steady growth. It’s likely to slow from here. But anyone looking to buy a reliable FTSE 100 dividend growth stock with a long-term view should still consider this one. Especially if we get a summer stock market dip.
This story originally appeared on Motley Fool
