Tesco (LSE: TSCO) shares have had a brilliant run. They’re up 36% over the last 12 months and an eye-popping 119% over five years. That’s despite a host of challenges, including the Ukraine energy shock, cost-of-living crisis, employer’s tax hikes, supermarket price wars, and the conflict in Iran.
They’ve also delivered a steady stream of dividend income on top, boosting the total return. That’s great for existing investors, but it does pose a problem for those considering the FTSE 100 supermarket today. Put simply, have they left it too late? Or can the UK’s favourite grocer continue its strong run?
Should I consider this stock now?
A lucky investor who put £10,000 into Tesco five years ago, when the shares traded around 223p, would have bagged 4,484 shares, ignoring trading charges. If they’d reinvested every dividend along the way, they’d have a fair few more than that today.
Sadly, they won’t get half as many today. After their strong run, Tesco shares now cost around 492p each. An investor with £10,000 would only get 2,033 shares. If they wanted to match that earlier investor and buy 4,484 shares, they’d have to invest a thumping £22,061.
In fact, because they’d have to invest even more to account for those reinvested dividends. Which goes to show just how rewarding equity investing can be. So should investors still consider Tesco at today’s price?
Tesco continues to power on, although lately profit growth has eased. Last week (16 April), it reported a 4.3% rise in full-year retail sales to £66.6bn, with growth across all business divisions and regions. Market share reached its highest level in a decade. Investors reaped the rewards with the dividend increased by 5.8%, to 14.5p per share.
2025 underlying profit came in at £3.2bn, up just 0.6% due to cost inflation. For 2026, Tesco is guiding towards between £3bn and £3.3bn. It’s known for being cautious about these things, but that’s a little disappointing. Hardly surprising though. The Iran war remains a worry. While stock markets have shrugged off the threat so far, that could change at any moment.
Do the risks now outweigh the rewards?
Rising fuel prices will drive up the cost of everything coming from transporting food to keeping the lights on in stores. Tesco typically has wafer-thin margins of around 4%, and those may be squeezed further. It can’t push all its extra costs onto shoppers. They’re also feeling the squeeze, as energy costs, mortgage bills, and unemployment rises. The next year could be tough, although Tesco’s sheer size and sale does offer some advantages, notably when negotiating with suppliers.
Inevitably, the shares aren’t as cheap as they were. The price-to-earnings ratio is now up to 16.5. I still think Tesco is worth considering with a long-term view, but they could be bumpy in the short term. One to buy on a dip maybe? It’s a top UK stock, but right now, I can see other FTSE 100 stocks I’d buy first.
