Tesco has unveiled its first dividend in three years: This is how the City is reacting

 
Caitlin Morrison
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Tesco shares rose at the open (Source: Getty)

Tesco has announced its first dividend in three years, after revealing a 667 per cent rise in pre-tax profits in the first half.

The supermarket posted 2.2 per cent growth in like-for-like UK sales, and the company's share price rose two per cent at the open.

This is how City analysts have reacted:

Stellar performance

Naeem Aslam, chief market analyst at ThinkMarkets, said: "For Tesco investors, hiatus period has come to an end as the company has finally restored its dividend-something which passive investors love the most. The firm reported another stellar set of earning numbers today with profit soaring and beating analyst’s forecast.

"This is a tremendous performance because remember the UK consumers are heavily hunted by the Brexit woes and consumer buying power is heavily squeezed by higher inflation."

He added: "For us, another encouraging sign in today’s earnings report was the reduction in the debt (nearly 25 per cent), thanks to the marvellous job done by the management. We would continue to monitor the debt situation for the firm and for us it would be a sign of confidence if the firm outpaces the debt reduction number amid its peers."

Drastic Dave lives up to his name

"The giant has woken from its slumber, and then some. Tesco’s surging profits are a huge achievement and a shot across the bows to the brand’s would-be obituary writers," said John Ibbotson, director of consultancy Retail Vision.

"The timing couldn’t have been more striking too. As the trial begins of three former senior executives accused of cooking the books during Tesco’s bad old days, this barnstorming result shows how far the turnaround has come.

“After seven consecutive improvements in like-for-like sales, Tesco has finally reinstated the shareholder dividend in the clearest sign yet that the rot has been stopped."

Ibbotson added: "Dave Lewis has lived up to his 'Drastic' nickname and achieved the delicate balancing act of increasing margins while barely raising prices.

"In the current inflationary environment this is a huge feat and one of the key reasons cash-strapped customers have been returning to the retail giant in large numbers."

Symbolic dividend

"There’s not many things more telling about the health of company than its ability to pay a dividend, and Tesco’s return to the register after a three year hiatus speaks volumes about the progress the company has made. It’s only a small amount, but this token payment is symbolic in nature," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"What’s particularly impressive is that Tesco has delivered such strong performance against a challenging backdrop. Consumer purses are under pressure and the costs of imported goods have risen, while at the same time there is no shortage of competitors vying for the business of UK shoppers. Tesco has done well to keep food price inflation down for its customers, while also improving its operating margin."

Khalaf was not wholly positive however, warning: "The Booker merger is increasingly looking like a potential banana skin for management. The Competition and Markets Authority is due to deliver its findings soon, and the recent plight of Palmer & Harvey, one of Tesco’s key suppliers, will serve to underline the potential knock on effects of the deal. This is also not a takeover which is unanimously backed by shareholders, with a few big investors voicing their opposition to the transaction.

"The risk is that just as the good ship Tesco is steadying, it gets blown off course by the Booker deal. However CEO Dave Lewis will no doubt argue that in a world where Sainsbury owns Argos, and Morrisons is flirting with Amazon, he needs to push Tesco on to stay ahead of the game."

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