Tesco’s ability to deliver good income yields to investors in 2016 and 2017 has been called into question after it cancelled its final dividend in the light of its £6.4bn pre-tax loss.
Nicla Di Palma, equity analyst for Brewin Dolphin, suggested that investors hoping to get a good yield would have to look elsewhere over the next couple of years.
Ms Palma said: “The final dividend was cancelled as expected and no guidance has been provided for the dividend in the future. We do not expect any dividend to be paid at Tesco for the years ending 2016 and 2017.”
Last September, Henderson Global Investors’ Job Curtis, fund manager of the £1.19bn City of London Investment Trust, said he had halved his holding in Tesco and was gradually taking profits in the company. He now no longer owns shares in Tesco.
However, not all investment trust managers have completely given up. According to the most recent data for the £980m Temple Bar Investment Trust, managed by Investec Asset Management’s Alastair Mundy, Tesco is still a small contrarian pick.
Last week, Tesco reported a record pre-tax loss of £6.4bn. Sales for the year dropped 1.3 per cent to £69.6bn and the trading profit fell by 57.5 per cent to £1.4bn
Tesco also posted a £3.88bn pension deficit, higher than the previous year’s £2.55bn. The company has agreed a deficit funding plan with the trustee, comprising cash contributions of £270m a year.
However, Charles Cowling, director for JLT Employee Benefits, said: “Tesco is one of the last major retailers to provide employees with defined benefits pensions. If this puts it at a competitive disadvantage then inevitably Tesco has been forced to look at cheaper, defined contribution, alternatives.”
The troubles at Tesco started in April 2013, when the supermarket giant reported its first fall in annual profits in 19 years. Problems were exacerbated in September 2014, when it revealed it had overstated its profits by £250m.
Analyst view
Ian Forrest, investment research analyst for London-based The Share Centre, said: “Investors may take some comfort in the market’s reaction to all of this bad news. The shares rose 2 per cent in early trading and remain well above the 155p low seen last December. The main reason is simply that the bad news was already anticipated and there was relief that the figures were not worse.”
