Tesco operates multiple retail formats in 14 different countries and ranks among the top three grocery retailers in the world with US’ Walmart and France’s Carrefour holding top slots.
Tesco is the leading food retailer in the United Kingdom, where it operates about 2,500 of its nearly 4,900 stores world-wide.
Tesco holds approximately 30 per cent share of the UK grocery market. Recently, the company has been losing market share to both price discounters such as Aldi and Lidl as well as peers like Asda (owned by WalMart) and Wm Morrison Plc. Tesco has also expanded into the non-food market through hypermarkets and online operations.
In comparison to its home grown competitors such as Sainsbury, Morrison, M&S and Waitrose, all with no or hardly any activities abroad, Tesco’s international business has become increasingly important.
Tesco’s non-UK sales amount to one-third of total group revenues. The group has a large presence in many Eastern European countries and parts of Asia, including Thailand, South Korea and increasingly China.
Dividends must have been paid long enough for several cycles of share price undervalue and overvalue to be established, in order that extremes of high and low dividend yield can be observed.
The Value Table shows the dividend yields at which a company’s share price is at historic undervalue levels – low share price (LoPr) with high yield (Hyld%) – as well as at historic overvalue levels – high share price (HiPr) with low yield (Loyld%).
Share prices are Undervalued or Overvalued when they are within a ten per cent range of their historic levels of high dividend yield (Hyld%) or low dividend yield (Loyld%).
The numbers in the share price columns (LoPr and HiPr) are the equivalent share prices to the dividend yields shown in the respective undervalued and overvalued dividend yield columns.
The color coding in the Status (‘S’) column of the table indicates the current share price valuation of the company. The column will be green when the company is historically undervalued, orange when the company is historically overvalued and white when the company is trading between historically undervalued and overvalued.
Share prices are Undervalued (Green) or Overvalued (Orange) in the Yield Chart when they are within a ten per cent range of their historic levels of high or low dividend yield.
Highs (Blue) and Lows (Red) are shown based on the monthly high and low share prices.
To reduce the period under consideration drag to the right the “slider” below the chart.
From the years collated Tesco has a track record of:
A long period of uninterrupted dividends will show us how companies and their management teams have performed going through several business and economic cycles.
Dividend growth is the hallmark of a high quality company. Dividends will not be maintained or raised if future earnings are in doubt.
A company that is making profitable progress should be able to boost its dividend by 7.5% or more at least five times in a 12-year period.
Compound Annual Growth Rate
For illustration purposes, we show the 5 year dividend CAGR and 12 year dividend CAGR for Tesco:
Note: CAGR is a pro forma number that provides a “smoothed” annual yield, so it can give the illusion that there is a steady dividend growth rate even when the annual dividend increases can vary significantly.
CAGR is used as a measure to evaluate how well one dividend paying company performed against other dividend paying companies in the same sector.
We are particularly interested in companies with a dividend CAGR of 8 per cent or higher for both the most recent five and twelve year periods.
The Financial Strength of a company is a weighted composite score of quantitatively analysed metrics taken from the Balance Sheet, Income Statement and Cash Flow Statement.
The top score is an 8. A score of 7 and above is considered to be financially strong. A score of 5 and above is considered to be financially okay. A score of 3 and above is considered to be financially poor. A score of below 3 is considered to be a bankruptcy possibility.
Steven Dotsch, the managing editor of Dividend Income Investor.com, owns shares in Tesco via the Dividend Income Portfolio.