LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to love about Britain's biggest supermarket, Tesco (TSCO 1.38%) (TSCDY 1.49%).
I'll also be asking whether these positive factors make this FTSE 100 retail giant a good investment today.
The 800-lb. gorilla
Tesco is far and away the dominant player in the U.K. supermarket sector. The company, which began life as a market stall in London's East End in 1919, today has a 30% share of the U.K. grocery market. Nearest rival Asda comes a distant second, with 18%.
It's said that one in every eight pounds spent in British shops goes into Tesco's tills. In economics, a monopoly business controls the market and the price of goods or services -- a great position to be in for the owners (or shareholders) of the business. In the U.K., Tesco is as close to a monopoly as it can be without falling foul of British and European Competition law.
When push comes to shove, it's hard to shift an 800-lb. gorilla.
Geographical diversification
None of Tesco's Footsie supermarket rivals have taken their trolleys beyond the U.K. In contrast, Tesco operates in 12 international markets and is the number one or number two supermarket in eight of the 12.
Over the last 15 years, Tesco's international businesses have gone from contributing 2% of group profits, to 30%. The company is becoming less and less reliant on the U.K. and, in time, could become a more fully multi-national business with no dependence on a single market.
Dividend delight
Tesco's dividend payout has more than doubled since 2005. In fact, Tesco has a 28-year record of annual dividend growth -- unmatched by any other supermarket, and by few other FTSE companies at all.
Such a dividend stream is a marker of a truly high-quality business. Over the past three decades, for legions of small U.K. investors, Tesco has probably put more food on the table -- literally and metaphorically -- than any other company.
A good investment?
It has to be said that 2012 wasn't the best of years for Tesco. A profit warning in January was followed by news that the board reckoned the company needed to invest £1bn to get its U.K. business back on track.
So far, the noises from management have been encouraging. But, while the share price has made decent headway since its post-profit-warning lows, the market is still rating Tesco cautiously.
At a recent share price of 370p, Tesco's price-to-earnings ratio (low double-digits), and dividend yield (4%), are at value levels not seen since I don't know when.
Legendary U.S. investor Warren Buffett rarely invests outside his home market, but has backed Tesco big time. The multi-billionaire, through his Berkshire Hathaway investment vehicle, now owns over 5% of Tesco's shares.
If you'd like to learn all about Buffett's investment, you may wish to read this exclusive in-depth report. The report is 100% free and can be in your inbox in seconds. Simply click here.
