Image source: Getty Images
The Tesco (LSE: TSCO) share price is on a hot streak. It’s more than doubled in the last five years, and it’s up 32% in the last 12 months. Dividends are on top, and there have been quite a few of those, with the stock yielding more than 4% at times. That’s a nippy performance from a supposedly stodgy FTSE 100 blue-chip.
It shows how FTSE 100 shares can deliver more excitement than many realise, even household names like this one. This kind of success can’t be predicted though. The more I research and write about shares, the more I see performance is cyclical.
FTSE 100 growth star
So often, companies have a good run, then idle for a while as they overstretch themselves or lose their way.
That happened to Tesco under former boss Philip Clarke, but it’s since reasserted itself as the dominant grocer, with a current UK market share of 28.2%, miles ahead of Sainsbury’s at 15.7%, according to latest WorldPanel figures.
On 2 October the company informed us that it now expects full-year 2025/26 adjusted operating profit of between £2.9bn and £3.1bn, up from previous guidance of between £2.7bn and £3bn. That’s OK if it hits the higher figure, less good if it lands at the lower one as that could mark a drop from its 2024/25 profit of £3.13bn.
Tesco operates in a tough market. It has to maintain thousands of stores and more than 300,000 staff, and works to thin operating margins of around 3.9%.
Yet revenues have risen steadily over the past five years, and so have earnings per share. Its secret weapon is its Clubcard scheme. About 23m households have one, equivalent to roughly 80% of the UK population. Tesco also has scale, which helps it negotiate better deals with suppliers.
Valuation and short-term outlook
After all the excitement, I suspect the shares may have to slow at some point. Tesco is now valued at a price-to-earnings ratio of roughly 16.35, higher than it has been.
Consensus one-year price forecasts produce a median target of around 471.7p, which implies a modest increase of just 4.5% from today. That’s well down on the last 12 months.
The trailing dividend yield is now an unexciting 3%, having been reduced by all that share price growth. For 2026 the forecast dividend per share is around 14.16p. That produces a yield of around 3.14%, based on today’s share price of 450.7p.
Forecasts suggest the 2027 payout could rise to 15.4p, lifting the forward yield to 3.4%. That’s steady, but hardly spectacular. Predictions aren’t set in stone, but these do confirm my view that perhaps investors have seen the best of Tesco for now.
Tesco remains a well-run business and one worth considering for the long term. But from here it could be more of a Steady-Eddie than a speed merchant. There’s nothing wrong with that, provided investors know what they’re getting. Maybe one to consider buying on a dip?
