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Here’s why I think you can retire on the Tesco share price

Rupert Hargreaves
Senior Man Sitting On Sofa At Home With Pet Labrador Dog

If you’re looking for stocks to retire on, I highly recommend taking a closer look at the Tesco (LSE: TSCO) share price. After a few rough years, the company is now back on track. Profits are rising, and it continues to dominate the retail sector in the UK.

Even though the German discounters are still trying to edge in on Tesco’s turf, the supermarket giant is fighting back aggressively. So far, it seems to be holding its own, and I think this will continue.

Key advantage

While Tesco cannot compete with the German discounters on price, it’s has been focusing on doing what it does best, which is offering customers a good experience for their money.

Tesco’s Clubcard loyalty scheme is highly successful and popular with shoppers, and management is planning to take advantage of that with a relaunch later this year.

Tesco also has more choices for customers and more staff. Discounter stores tend to have a skeleton staff and limited options. The bigger retailer can stock all the brand favourites and afford to have a few more staff on hand to improve the customer experience.

Not many retailers can afford to have both low prices and plenty of staff in store, but Tesco can because of the group’s size. It’s the largest retailer in the UK with one of the most developed distribution and logistics networks of any business.

This huge competitive advantage gives the firm an edge over all of its competitors, and it will take a lot to displace Tesco from its market-leading position.

Another reason why I believe the group will continue to churn out impressive returns for shareholders for many decades to come is the fact it’s the biggest food retailer in the country, and one of the biggest in the world.

People have to eat no matter what and while the retail industry has been through a turbulent period during the past few years, food and drink sales have only continued to grow. Further growth is expected over the next five years.

The UK food and grocery industry is projected to expand by £24.1bn, or 12.5%, by 2024. Tesco, with its 27% market share, should be able to grab a big chunk of that.

Cash returns

As the group knuckles down and concentrates on generating profit over the next few years, City analysts believe the group could return billions to shareholders.

Earlier this year, analysts speculated that share buybacks could be on the cards, although management eventually settled for a dividend hike. Following the increase, shares in the retailer are set to yield 3.3% for fiscal 2020, rising to 3.7% next year.

As profits continue to expand, I’m highly confident the payout will grow further in the years ahead.

So, that’s why I think you can retire on the Tesco share price. The company’s entrenched position in the UK food and beverage market makes it one of the most defensive businesses around.

As the market continues to expand, Tesco’s bottom line should grow with it.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019