LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators, and buy at prices that offer decent value.

So, this series aims to identify appealing FTSE 100 investment opportunities, and today ,I'm looking at Tesco (LSE:TSCO)(OTC:TSCDY), the well-known supermarket chain.

With the shares at 366 pence, Tesco's market cap. is 29,520 million pounds.

This table summarises the firm's recent financial record:

Year to February20092010201120122013
Revenue (million pounds) 53,898 56,910 60,455 63,916 64,826
Net cash from operations (million pounds) 3,960 4,745 4,239 4,408 2,837
Adjusted earnings per share (pence) 29.06 31.8 36.44 40.31 35.97
Dividend per share (pence) 11.96 13.05 14.46 14.76 14.76

The recent full-year results don't look very pretty at Tesco. It's hard to see anything attractive in a 14.5% reduction in underlying profits.

During the year, the firm disposed of its assets in Japan, and it recently announced its intention to pull out of America. But there has been trouble closer to home, too, with weaker trading in Europe, and a catch-up investment programme for its U.K. stores, both pulling down profits.

Tesco now has some of the characteristics of a classic turnaround play. In that respect, the homeland is important, as the U.K. delivers around 65% of ongoing underlying trading profit. Investors will be hoping that the directors don't take their eyes off that spinning plate, again. Meanwhile, 19% of profit comes from Asia, 10% from Europe, and around 6% from Tesco Bank.

If the firm can get back on track, and the language of the directors sounds determined, investors could yet see out-performance on total returns, in the end.

Tesco's total-return potential
Let's examine five indicators to help judge the quality of the company's total-return potential:

  1. Dividend cover: adjusted earnings covered the recent dividend just under 2.5 times. 4/5
  2. Borrowings: net gearing is around 50% with net debt about 3.8 times operating profit. 3/5
  3. Growth: declining cash flow supports growing revenue and reduced earnings. 3/5
  4. Price to earnings: a forward 10.5 looks fair given growth and yield expectations. 3/5
  5. Outlook: disappointing recent trading and a 'determined to improve/optimistic' outlook. 3/5

Overall, I score Tesco 16 out of 25, which inclines me to take a neutral view on the firm's potential to outpace the wider market's total return, at least in the short term.

Foolish summary
A well-covered dividend, under-control debt, and strong cash-flow backing top the list of attractions here. The outlook is optimistic, and the valuation is neutral, and that would encourage me to buy Tesco shares for the long haul.

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