Tesco (LSE: TSCO) shares have had a terrific run. They’ve climbed 102% in the last five years, with dividends on top. I didn’t see that coming. As it’s the dominant UK grocer, I thought it could fall prey to smaller, hungrier rivals, including German discounters Aldi and Lidl. How wrong can you be?
Latest Worldpanel data shows its market share is holding up nicely at 28.1%. That’s streets ahead of second-placed Sainsbury’s at 15.5%. But as ever when a top blue-chip stock does this well, it raises the same question in my mind. Can it keep growing at this speed?
Does this FTSE 100 stock still offer good value?
Earlier this year, I decided Tesco was starting to look a little expensive, as the price-to-earnings ratio crept above 17. Today, it’s a fraction less challenging at 15.5. Which reflects a dip in the share price. Three weeks ago, on 22 April, the shares were doing nicely at around 495p. Today, they’re down 9.% to 452p, which would have reduced a £10,000 stake to £9,050.
It’s been a volatile time for shares generally, as the Iran war drives up oil prices and inflation. This threatens Tesco from two sides, raising its costs while squeezing shoppers. It runs to tight profit margins, now as low as 2.4%. That’s common across the competitive grocery sector, but doesn’t leave much room to manoeuvre.
Tesco highlighted the danger in its 2025/26 results on 16 April. These showed underlying operating profit up just 0.6% to £3.2bn, with cost inflation to blame. Profit guidance suggested a small decline in the current financial year. So how worried should we be?
As oil shortages loom, this could be a tough summer. I’m also concerned by the EY Item Club’s warning that that the UK would lose 160,000 jobs this year. Yet Tesco is arguably better placed than most to withstand whatever is heading our way, because of its mighty scale and deep supplier relationships.
Could summer throw up a better buying opportunity?
The runaway success of Tesco Clubcard, now held by 24m households, a staggering 80% of the total, helps. The group also generates plenty of free cash flow, around £1.75bn last year, with similar likely in 2026/27. That should secure the dividend. At 3.2%, the trailing yield is solid but not spectacular. Recent history has been a little patchy. Shareholder payouts were frozen both in 2021 and 2023, but subsequent growth has been strong, as my table shows.
| Dividend per share | % growth | |
| 2026 | 14.5p | 5.84% |
| 2025 | 13.7p | 13.22% |
| 2024 | 12.1p | 11.01% |
| 2023 | 10.9p | 0.00% |
| 2022 | 10.9p | 19.13% |
I’ve been following Tesco shares for some years, but felt I’d missed my moment. The recent dip has revived my interest, and I think it’s worth considering again. I’m holding back for now as I suspect we’re in for a tough summer, and that could offer investors a better entry point. I’ll be monitoring events closely to see if we get one.
