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If somebody had asked me five years ago if the Tesco (LSE: TSCO) share price would ever be called barnstorming, I’d have laughed in their face. Tesco? Fat chance. I’d have called it a weather-beaten, UK blue-chip with modest dividend prospects and even more modest share price growth potential.
I thought its glory days were over, as dreams of global expansion collapsed and its market share was nibbled away by German discounters Aldi and Lidl. And you know what? I was completely wrong.
High-flying FTSE 100 stock
Tesco shares have stormed that barn and then some, doubling in five years and climbing 20% in the last 12 months. Dividends are on top of that, and with the yield regularly exceeding 4%, investors have enjoyed a terrific total return. Now can it carry that through into 2026?
No share price barnstorms forever. Last year’s winners can quickly become next year’s losers as expectations rise, growth slows, and yields are squeezed by higher prices. To a degree, Tesco’s in that position.
The forward price-to-earnings ratio is now 16.6. Not expensive, but pricier than of late. The trailing yield has slipped to 3.1%, though it’s forecast to hit 3.25% over 2026. Bang in line with the FTSE 100 average.
Yet it’s shown terrific resilience. The last few years should have been a killer for the grocery sector. The cost-of-living crisis hit shoppers hard while pushing up Tesco’s costs. As the UK’s biggest private sector boss, it also had to swallow the big increase to Employers’ National Insurance contributions in last year’s Budget, plus April’s 8.7% Minimum Wage hike. With margins already under 4%, that was a challenge. But it managed it.
Interim results, published on 2 October, showed group sales up 5.1% to £33bn, adjusted operating profit up 1.6% to £1.67bn and free cash flow rising 2.9% to £1.26bn.
The growth outlook
These are solid results. It helps that wages have finally been rising, although they’re expected to slow next year. Mind you, so is inflation, which will help. Further interest rate cuts could put money into shoppers’ pockets. I’m concerned about rising unemployment though. And we still can’t rule out a domestic recession. 2026 could be tough across the board.
Brokers are more optimistic than I anticipated. Consensus forecasts produce a one-year Tesco share price target of 482p, which is 9% above today. Add that 3.25% forward yield, and the total return could reach 12.25%, turning £10,000 into £11,225.
Of course, forecasts aren’t guaranteed. The outlook can shift quickly. And that return isn’t what most people would call barnstorming. I suspect Tesco may struggle to maintain its momentum in 2026. But with a long-term view, I still thinks its shares are well worth considering. It’s proved me wrong before and may do so again.
Tesco remains a solid core holding to consider for patient investors who value consistent returns, strong brand and a proven ability to weather economic turbulence. However, I can see plenty of FTSE 100 stocks that have more immediate barnstorming potential, and I’ll be exploring those instead.
