It is no secret that I like Tesco, having written about the company a number of times on these pages. Recently I updated my dividend log book and my mind wandered into the realms of Tesco’s future dividend cash stream as well as a valuation based on the simple book value method.
Dividend stocks provide the investor with cash to reinvest if either the dividends received are large enough or if the stocks, and accompanying cash flow received, are held long enough. Of course taxation must be figured into the equation.
I wrote about the Washington Post dividends that Warren Buffett receives here.
As can be seen from that same article Tesco’s dividend yield increases has been exemplary.
For the current year the dividend is expected to come in at 15.62p which equates to a yield of 4.01% on my Tesco top up price which occurred yesterday at a price of 389.4p.
The linked article above shows that, on average, Tesco increased their dividend by 11.29% per annum. However, I think that such rates are not sustainable unless the international division is somewhat larger than it is currently.
Working forward with an estimated annual dividend increase of 9% — a more realistic figure I think — we can calculate the approximate dividend in five years time:
Tesco’s five-year historic dividend yield equals 3.04% therefore we could estimate that in five years time the Tesco share price will be around 790p or roughly double from where it is now: (24.03/3.04) X 100
Tesco is a member of the S&P Euro 350 Dividend Aristocrat list, having increased its dividend annually over the last 26 years, and will try to avoid too cut the dividend at all costs as this would reflect very badly on the company.
Similarly we can look at book value. Over the last five years the share price has gone exactly nowhere although admittedly the fall in early 2009 provided a lovely long term purchase opportunity. The stock trades at the same level now as it did at the end of 2006.
Buffett bought Tesco stock throughout 2006 and finished buying, as far as I can make out from newspaper articles, at just under 400p.
Book value then came in at GBP 10.57bn on 8.04bn diluted shares. Currently book value equals GBP 16.62bn on 8.06bn diluted shares.
Suppose that book value continues to grow at that rate. In five years book value will increase by 70% to GBP 28bn so given that the market capitalization historically is around 2.35 times book value we can calculate a market capitalization, five years hence of around GBP 65.8bn.
Like the dividend outcome this figure is roughly double of Tesco’s current valuation.
These types of calculations are not precise but then no calculation is when you are looking five years out.
Disclosure: Long Tesco and looking to add over the next 72 hours if the price is right.
Dividend stocks provide the investor with cash to reinvest if either the dividends received are large enough or if the stocks, and accompanying cash flow received, are held long enough. Of course taxation must be figured into the equation.
I wrote about the Washington Post dividends that Warren Buffett receives here.
As can be seen from that same article Tesco’s dividend yield increases has been exemplary.
For the current year the dividend is expected to come in at 15.62p which equates to a yield of 4.01% on my Tesco top up price which occurred yesterday at a price of 389.4p.
The linked article above shows that, on average, Tesco increased their dividend by 11.29% per annum. However, I think that such rates are not sustainable unless the international division is somewhat larger than it is currently.
Working forward with an estimated annual dividend increase of 9% — a more realistic figure I think — we can calculate the approximate dividend in five years time:
Year End ( February ) | Dividend ( Pence ) |
2013 | 17.03 |
2014 | 18.56 |
2015 | 20.23 |
2016 | 22.05 |
2017 | 24.03 |
Tesco’s five-year historic dividend yield equals 3.04% therefore we could estimate that in five years time the Tesco share price will be around 790p or roughly double from where it is now: (24.03/3.04) X 100
Tesco is a member of the S&P Euro 350 Dividend Aristocrat list, having increased its dividend annually over the last 26 years, and will try to avoid too cut the dividend at all costs as this would reflect very badly on the company.
Similarly we can look at book value. Over the last five years the share price has gone exactly nowhere although admittedly the fall in early 2009 provided a lovely long term purchase opportunity. The stock trades at the same level now as it did at the end of 2006.
Buffett bought Tesco stock throughout 2006 and finished buying, as far as I can make out from newspaper articles, at just under 400p.
Book value then came in at GBP 10.57bn on 8.04bn diluted shares. Currently book value equals GBP 16.62bn on 8.06bn diluted shares.
Suppose that book value continues to grow at that rate. In five years book value will increase by 70% to GBP 28bn so given that the market capitalization historically is around 2.35 times book value we can calculate a market capitalization, five years hence of around GBP 65.8bn.
Like the dividend outcome this figure is roughly double of Tesco’s current valuation.
These types of calculations are not precise but then no calculation is when you are looking five years out.
Disclosure: Long Tesco and looking to add over the next 72 hours if the price is right.
