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magazineTesco shares rally on dividend cheer
TESCO (TSCO) 232.3p
Loss to date: 1.9%
Original entry point: Buy at 236.9p, 23 May 2019
Shares in grocery giant Tesco (TSCO) jumped 4% to 232p late last week after the company reported a sharp increase in operating profits and confirmed plans to return £5bn to shareholders.
UK and Irish supermarket sales for the year to 29 February, before the Government lockdown came into force, spurring panic buying, were up 0.2% to £44.9bn.
However, operating profits for the UK and Ireland were up 17% to £2.18bn, meaning an operating margin of 4.2%, the highest for some time.
Sales for the Asian business, which is shortly to be sold, were flat at £5.2bn. Part of the proceeds from the sale are going to pay down the company’s pension deficit while £5bn has been earmarked as a special dividend.
Tesco also kept its final dividend for the 2019 financial year, taking the annual payout to 9.15p per share, an increase of 58%.
While the company gave no concrete financial guidance for this year, it said that under its base case scenario that sales patterns return to normal by August, it would incur £650m of additional costs which it would be able to offset through Government help and cost cuts.
SHARES SAYS: Tesco’s sales performance and special dividend are compelling reasons to keep owning the shares.
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