Tesco's Results Are Shaky But The Dividend Is Safe

Apr. 19, 2012 2:37 PM ETTesco PLC (TSCDF)13 Comments
Steven Dotsch profile picture
Steven Dotsch
101 Followers

Tesco's (OTCPK:TSCDF) investment case has been clear for many years. The UK business has been the cash cow, with profits ploughed into international expansion.

So far this strategy has worked pretty well. For some time now, Tesco occupies the number three global retailing spot by revenue, lagging only behind US' behemoth Wal-Mart (WMT) and France's Carrefour (CRERY.PK).

However, following the shocking post-Christmas warning about its UK performance, when the group posted its first profit warning in more than 20 years, the recently announced results reassured, at least somewhat.

Tesco's 2011-12 Results

Not that the overall results were that bad. At least, Tesco's trading results for the year ending February 2012 were not worse than expected. More importantly, there was not a second profit warning nor a dividend cut. Instead, Tesco 'surprised' with the group reporting better than expected total sales up by 7.4 per cent to £72bn ($115.2bn), generating pre-tax profits up 5.3 per cent to £3.8bn ($6.0bn).

Nevertheless, worryingly, UK profits fell for the first time in living memory by 1 per cent to £2.5 bn ($4bn), while in contrast international profits jumped 17.7 per cent to £1.1 bn ($1.76bn) - the first time Tesco has made more than £1bn from its non-British businesses.

Also, Tesco's UK profits still compare favorably: no other British retailer makes more than £1bn ($1.6bn), let alone £2.5 bn ($4bn). Also, Tesco has more shops in the UK than Sainsbury's (OTCQX:JSAIY), ASDA and Morrisons (MRWSY. PK). And they are, in most cases, in prime locations.

But, what matters to us most, as Dividend Income Investors: the widely mooted dividend cut did not materialize. Instead, the 2011-12 final dividend payment is set at 10.13 pence ($0.16); up by less than 0.4 per cent when compared to last years' final dividend of 10.09 pence, and this will be paid on July 6th, with the shares going

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Steven Dotsch profile picture
101 Followers
From a very young age, Steven learned the value of money and saving. He started saving money when he was only five, washing his father’s car and started to invest in Dutch shares when he was fourteen. Following university in Amsterdam, Steven pursued a career in merchant banking in The Netherlands. Since 1989, he has been living and working in London. Steven left the City in 1998 and since then, has been involved both as a founder as well as an early stage investor with a number of online and mobile telecoms ventures, including Ukonlineinvesting.com – a now defunct website which was aimed at longer term investors interested in making better informed investment decisions. In 2009, Steven started Early-Retirement-Investor.com, a website aimed at professionals and expats wanting to retire earlier and richer. In 2010, Steven launched Dividend Income Investor, to demonstrate the benefits of dividend income investing based on his own unique investment research approach, buying shares at historically undervalued levels. For more on Steven, click http://www.dividend-income-investor.com/about-steven-dotsch/

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