Tesco (LSE:TSCO) shares have had an impressive run. The UK’s largest supermarket has been steadily taking market share from its rivals, with its slice of the grocery market now sitting at a decade-high of 28.5%. And with free cash flow climbing 12% and hitting £1.96bn in its latest full-year results, the investment case is looking increasingly compelling.
But beyond the share price story, Tesco’s also proving to be quite a popular income pick. So the question is: how much would an investor actually need to put in to earn a meaningful £1,000 a year in passive income?
Crunching the numbers
Right now, Tesco shares pay out a total of 14.5p per share in dividends. At that level, an investor would need to hold around 6,896 shares to collect £1,000 a year in passive income. And at its current share price of around 443p, that translates into an initial outlay of roughly £30,594.
That’s a significant chunk of capital. But here’s where it gets interesting.
Analyst forecasts project Tesco’s dividend rising to 15.55p per share in its 2027 fiscal year. At that level, the number of shares needed drops to just 6,431, or roughly £28,489 at today’s price. That’s a saving of over £2,100 simply by buying, holding, and waiting one year for the dividend to grow.
Of course, that’s still a sizable sum. So is putting that kind of money into Tesco shares even a good idea?
What needs to go right – and what could go wrong
The argument to buy shares today is rooted in Tesco’s operational excellence.
Management upgraded its medium-term free cash flow guidance range to land between £1.5bn and £2.0bn a year. That’s a strong signal of confidence in its ability to keep generating the cash that sustains and grows shareholder payouts. And its Clubcard loyalty scheme, relentless market share gains, and expansion of higher-margin private label ranges all reinforce its competitive moat.
That said, the near-term picture carries genuine risks. While positive, the guidance ranges issued for its 2027 fiscal year were far wider than usual. It’s clear the company’s accounting for all the uncertainty created by the conflict in the Middle East and the potential impact on UK households as well as wider energy prices.
In the words of the company: “Much will depend upon the duration of the conflict and in particular, the potential implications for UK households and the economy more broadly”.
Pressure from discounters such as Lidl and Aldi is also intensifying, and with margins already razor-thin, absorbing higher costs without cutting prices is a difficult balancing act.
Is it worth the risk?
Despite the near-term noise, Tesco shares are starting to look like one of the most dependable dividend growers in the FTSE 100. Since dividends were resumed in 2018 after a two-year hiatus, the payouts have expanded by 383%. And with the stock seemingly on track to hike dividends yet again, this growth streak looks set to continue.
So for income-focused investors seeking diversified exposure to the UK retail market, Tesco shares could be worth a closer look. And it isn’t the only business in this sector showing impressive promise.
Should you invest £5,000 in Tesco Plc right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Tesco Plc made the list?
Zaven Boyrazian does not hold any positions in the companies mentioned.
