Tesco: Stop Press. The wheels are off the
trolley. In advance of the accelerated arrival of the new Chief Executive on 1st
September we have had another profits warning and now a major dividend cut.
Aldi and Lidl are increasing market share and hurting the established players
badly. Tesco, in particular, has suffered from poor overseas expansion
(especially Fresh ‘n’ Easy in the US) and finding itself over-spaced in the UK
as home delivery and convenience stores negate the need for their hyper-markets.
It has been expected that Tesco, in the face of shrinking market share (down to
c28% from a peak in the low 30’s), would re-invest some margin in regaining the
love of its disaffected shoppers. This now looks to be about the only major
trading tactic available to the new CEO, Dave Lewis. The board (presumably with
his full knowledge and agreement) have said that the interim dividend will be
cut by 75% to 1.16p. If this is repeated for the full year the total dividend
will be 3.69p, a yield of 1.6% at the 230p price level. The re-build of the
dividend from there could be long and slow given the mountain of problems. So,
from an income perspective, this is a stock to be very wary of for now. It is
worth noting that dividend cuts at Sainsbury’s and Morrison’s (especially so in
the latter case) are being debated in the business pages of the papers. It may
well be that, for income investors, the whole sector is one to swerve past
until the trolley dodgems calm down and a new equilibrium starts to emerge. (29th August 2014)
These comments are not a
personal recommendation to deal. Any investments can fall as well as rise in
value, so you could get back less than you invest. I may have a financial interest
in some of the stocks written about. www.dividendpower.co.uk
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