The Tesco (LSE: TSCO) share price has risen about 10% over the last month. This sounds impressive. However, the FTSE 100 index has jumped 9.9% over the same period. So, when put into context with the footsie, the supermarket’s shares no longer appear to be market-beating.

Looking further back over five years, it appears that the only time Tesco shares have outperformed the FTSE 100 is through the recent coronavirus period. This is no surprise. During this period, many companies have had to stop operating but our need for food doesn’t go away. So, it’s likely all grocers will benefit, at least in the short term.

But is Tesco worth buying for the longer term?

Tesco share price leaps 4% on dividend 

Of Tesco’s recent 10% price jump, 4% was due to news that the grocer will reward its shareholders by paying a dividend. Currently yielding around 2.91%, it’s attractive for some but almost half that of rival Sainsbury, now at 5.33%.  

The news of the dividend raised some eyebrows. Tesco has generated pre-tax profits of £1.3bn over the 12 month period leading up to February 2020. But CEO Dave Lewis defended the decision by highlighting the chain’s need for capital to finance hiring new staff and its growing supply and distribution activities.

Indeed, Tesco may have to pay an estimated £925m to keep customers happy. Such large amounts may begin to undermine recent share price performance in the long run. The next two months’ revenue figures could help to show whether Tesco’s March boom is sustainable. 

Tesco is said to be a leader in its field. Moreover, it’s had a good recovery under its new CEO since the accounting scandals and profit warnings of 2014. The company has made a name for itself with online shopping and has a well-established platform. However, its competitors are catching up and I’m struggling to see how the grocer will maintain its leading position. 

Morrisons is growing its market share 

One such rival is FTSE 100 grocer Morrisons (LSE: MRW).

Morrisons is very much the smallest of the big four grocers. Its share price has been disappointing but there are many reasons to be optimistic about the future. 

For starters, Morrisons is expanding. Recent agreements with McColls and Amazon are generating new customers. This is giving more competition to the bigger grocery chains, and in particular, Tesco Metro and Sainsburys Local. Amazon Prime customers can now stock up on Morrisons groceries for same-day delivery. I don’t think any other online food retailer offers this service.  

Morrisons profit margins are similar to its peers. However, some analysts believe the smaller supermarket to have a more efficient cost structure. This bodes well for the future as coronavirus-induced pressures on logistics will be expensive. It will also help having a stronger balance sheet and no notable pension deficit to fund.

At 3.69%, Morrison’s dividend yield is better than Tesco. The company has a history of well covered and growing dividends, making it attractive for income investors. And some analysts expect Morrisons business model to take off, growing its share price. This makes it a good choice for value investors too.    

As the FTSE 100 recovers from the stock market crash, it may leave the Tesco share price behind. But I think Morrisons is better placed to go with it.

The post Has the Tesco share price beaten the stock market crash? appeared first on The Twelfth Magpie.

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Rachael FitzGerald-Finch holds shares in Morrisons. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Why the glum response? The numbers look okay to me. I think there’s a chance that the market is over-reacting to the expected slowdown in store sales that’s followed a long summer and the football World Cup.

Today, I’m going to take a fresh look at Morrisons and consider another strong performer from the FTSE 100.

Wholesale boost

Morrison’s like-for-like sales rose by 5.6% during the 13 weeks to 4 November, excluding fuel. However, this top-level figure masks a big divide between retail and wholesale growth.

Retail store sales only rose by 1.3% on a like-for-like basis, compared to the same period last year. The remainder of the firm’s sales growth was provided by its wholesale business, which recorded a 4.3% increase in like-for-like sales.

Wholesale growth is being driven by contracts to supply convenience stores operated by McColl’s, Rontec, Sandpiper and MPK Garages. In total, Morrisons will soon supply more than 1,700 convenience stores, without the risk of owning or operating these shops.

In my view, this wholesale operation gives the retailer an edge over rivals. Excess capacity in its food production business can be used to supply other retailers, lifting the group’s overall profits without requiring much investment.

Is the price right?

There was no word on profit margins in today’s trading statement, so it should be fair to assume that management anticipates full-year profits to be in line with expectations.

Analysts’ forecasts suggest adjusted earnings will rise by 8% to 13.2p per share this year, with a dividend of 8.1p. At the time of writing, this puts the stock on a forecast P/E of 18, with a prospective yield of 3.4%. In my view, that’s a fair valuation for a good business. If I was a shareholder, I’d be happy to continue holding.

Another successful turnaround

Morrison’s turnaround under chief executive David Potts has impressed me greatly. Another FTSE 100 dividend stock that’s also delivering an impressive recovery from recent problems is educational publisher and training group Pearson (LSE: PSON).

While stock markets were selling off in October, this firm’s shareholders received an unexpected boost. Adjusted earnings guidance for the current year was lifted from 49p-53p per share to 68p-72p per share.

I should point out that this 30%+ increase isn’t the result of a sudden surge of growth. Adjusted operating profit guidance for the year is unchanged, but lower-than-expected tax and finance costs mean that after-tax earnings will be higher.

This highlights a key reality of investing in big businesses — financial engineering is often one of the main drivers of earnings growth.

Would I buy Pearson?

Selling course books and eBooks remains a tough business, with sales flat during the third quarter. Luckily, Pearson’s online training division performed better, with global course registrations up by 13%.

The firm says that plans to deliver £300m of annual cost savings by the end of 2019 are on track. Analysts’ forecasts place Pearson stock on a 2018 forecast P/E of 15, with a prospective yield of 2.1%. This looks fully-priced to me given that underlying earnings are expected to be flat in 2019. I’d rate the stock as a hold only at this level.

The post Is the Morrisons share price a bargain, or should I buy this other FTSE 100 dividend stock? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended McColl's Retail. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Tough environment

But incessantly growing competition, both from the likes of Lidl and Aldi, and from the Sainsbury-Asda merger (if it happens), could well put the annual payments under pressure. In fact, analysts are already predicting a slip to 2.8% for 2020.

The company’s latest setback at the Court of Appeal is not going to help, as judgment this week upheld a High Court verdict that it’s liable for a data breach. Employee Andrew Skelton stole payroll data, including bank and salary details, from 100,000 staff, and much of it ended up posted online.

Morrisons could now be facing compensation claims, unless it can manage to overturn the latest ruling through an appeal to the Supreme Court. With Skelton jailed for eight years, Morrisons argues that it’s not liable for his criminal misuse of the data.

Too expensive?

But the bottom line for me is that I see Morrisons shares as being on too high a valuation for such a competitive industry, with forecasts suggesting a P/E ratio as high as 17.5 for the year to January 2020. I see the sector as being unlikely to exceed average FTSE 100 dividend yields, and I can’t see those P/E multiples above the long-term average of around 14 as justifiable.

A forecast dividend yield for Tesco of 3.4% by 2020 is probably lending some support to the whole sector, but I’m not yet convinced such levels are sustainable. And Tesco is on a lower 2020 P/E than Morrisons, of under 13, with better forecast EPS growth.

More convincing dividend

For long-term pension dividends, I’ve liked the look of Man Group (LSE: EMG) for some time.

I like the idea of pooled investments as a way of spreading risk — for example, I reckon investment trusts can form a great cornerstone for a retirement portfolio. And I also see investing in a fund manager as something along the same lines, as your rewards will be dependent on how its total set of investments perform.

That’s in the long term, and an asset manager like Man Group can be affected by short-term ups and downs probably more than most. If markets are falling, for example, returns for clients won’t be so good, and Man won’t be able to charge the same performance-related fees.

Steady progress

But as there are considerably more up years than down years in stock markets, it should even out in the end. And though earnings have been volatile (and look likely to remain so), Man Group has been evening out its dividends pretty well.

Forecasts suggest big yields of 6.5% this year and 6.8% next, and I can see the cash as being sustainable over the long term. The payouts will perhaps be only thinly covered some years, but as long as there’s an overall progressive trend, I see no problems for those with a decades-long pension horizon.

The post Here’s a FTSE 250 dividend stock I’d pick for my pension ahead of the Morrisons share price appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The figures are good. Revenue rose 4.5% compared to the equivalent period the year before and underlying earnings per share moved 8.5% higher. The directors expressed their confidence in the outlook by pushing up the interim dividend by 11.4% and they also declared a special interim dividend of 2p per share, which more than doubles the ordinary interim payment.

A better and better business

Chairman Andrew Higginson declared in the report that “with each passing quarter, the Morrisons team is building a better and better business.” Indeed, there’s evidence that the finances are getting better. For example, like-for-like (LFL) sales excluding fuel and VAT rose 4.9% in the first half of the year and in the second quarter they were up 6.3%. The company lists this progress with like-for-like sales as one of the highlights of the period.  

Other highlights include the further penetration of the firm’s internet shopping offering into the south of the country and into Scotland, and progress with a plan to supply McColl’s Retail stores. Since the period ended, the firm has also struck a deal to supply MKP Garages forecourt stores and Big C in Thailand.

Such deals demonstrate that progress with building up the company’s fledgling wholesale business is brisk, and the directors expect to achieve around £700m of annualised wholesale supply sales during 2018, which is ahead of their previous guidance. However, net incremental profit from all of wholesale, services, interest and online was £4m during the period, which compares to a total underlying profit before tax of £177m in the first six months of the year. I reckon that shows how dependent the firm remains on the trading results of its core supermarket retailing operations.

And here are my negatives

Morrisons is three years into its turnaround and I would say that we haven’t got much to grumble about if you look at the rise in the share price over the period. But I can see several ongoing negatives that would make me more inclined to sell the shares now if I owned them, rather than to buy or hold them. For example, the pre-tax profit margin is wafer thin, just 2.3% or so in these results. That’s par for the course in the sector, but the balance between profit and loss is fine and it won’t take much to tip it.

Indeed, the company said in today’s report, “UK food retail continues to be highly competitive and dynamic.” I reckon the threat from fast-expanding discounters such as Aldi and Lidl will continue and Morrison probably can’t meet it head-on by competing on price, which is probably why it seems to be aiming for enhancing the shopping experience for its customers. Meanwhile, the valuation seems high. The forward price-to-earnings ratio for the trading year to January 2020 sits just above 18. I think that’s too rich, so I’m avoiding the stock, and if I owned it I’d sell.

The post Should you buy, sell or hold WM Morrison Supermarkets after today’s results? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended McColl's Retail. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

One retailer whose success has surprised many investors over the last couple of years is supermarket group Wm Morrison Supermarkets (LSE: MRW). By signing wholesale supply deals with convenience store group McColl’s and Amazon, Morrison’s has been able to boost volumes and improve the profitability of its in-house food production business.

These changes have been combined with long-overdue IT upgrades, tighter control of working capital and price cuts in-store. The overall result has been very impressive, in my view. Like-for-like sales excluding fuel and VAT rose by 2.8% last year, while total revenue was 5.8% higher, at £17.3bn. Pre-tax profit rose by 16.9% to £380m and the ordinary dividend was lifted 12% to 6.1p per share.

Is the price still right?

The Morrisons share price has risen by 14% so far in 2018. The stock now trades on 19 times 2018/19 forecast earnings, with a forward dividend yield of 2.9%. This isn’t cheap, but I think the firm’s triple role as a food producer, wholesaler and retailer should help it stay competitive against larger rivals Tesco and Sainsbury.

City analysts seem to agree. Broker consensus forecasts suggest an 8% rise in earnings per share for 2019/20. I continue to rate this stock as a buy.

Sales are rising, but so are losses

Sales at online-only electrical retailer AO World (LSE: AO) have tripled from £275m in 2013, to £796m for the year ending 31 March 2018. Total revenue rose by 13.6% last year, but figures published today show that AO made an increased loss of £16.2m during the year, compared to a loss of £12m in 2016/17.

There are a couple of reasons for this. The first is that AO is still investing in its unprofitable European business. Today’s results show that Europe revenue rose by 54.8% to €131.2m, but the division’s operating loss was unchanged at just under £28m.

The second reason is that profit margins collapsed in the UK. Higher spending on marketing and a “competitive pricing environment” meant that although UK sales rose by 8.1% to £680.8m, operating profit in the firm’s home market fell from £15.6m to just £11.6m. This reduced the group’s UK operating margin from 2.5% to 1.7%.

Just not big enough

AO’s revenue of £796m represents just 7.5% of the £10.5bn reported by UK rival Dixons Carphone last year. This gives the larger group valuable economies of scale.

Although AO is still expanding, last year’s UK sales increase of 8% suggests to me that growth in its home market is slowing. Meanwhile total sales of €131.2m in Germany and the Netherlands indicate that the company is still a minnow on the Continent.

In my experience, AO provides a good service to its customers. But it’s been a terrible investment. It’s racked up a loss every year and was forced to raise cash from shareholders in April through a £50m placing.

Electrical products are highly commoditised and price competition is intense. AO is expected to report another loss next year. These shares still look too expensive to me.

The post Why I’d buy FTSE 100 flyer Morrisons and sell this 50% faller appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Roland Head owns shares of Dixons Carphone. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended McColl's Retail. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Although fast-growing discounters Aldi and Lidl have caused a lot of disruption, the big four supermarkets still account for around 70% of all grocery sales. I don’t think that size advantage is likely to disappear anytime soon.

Of course, not all supermarkets are equal. Although I’m quite keen on Tesco, due to its 28% share of the market, my top pick in the supermarket sector is Wm Morrison Supermarkets (LSE: MRW).

A basket of good figures

The Bradford-based firm announced this morning that shareholders will receive a special dividend of 4p for last year, lifting the total payout to 10.1p. That’s an 85% increase on the previous year and gives the stock a total yield of 4.5%, at current levels.

This generous payout has been made possible by another strong year for the firm. During the 53 weeks to 4 February, Morrison’s underlying pre-tax profit rose by 11% to £374m. Full-year revenue rose by 5.8% to £17.3bn, while like-for-like sales were 2.8% higher.

These figures suggest to me that the group is maintaining its market share, despite growth from Aldi and Lidl. Recent data from market research group Kantar Worldpanel supports this view, showing that Morrisons’ 10.6% share of the UK grocery market is unchanged from one year ago. In contrast, Tesco, Asda and J Sainsbury have all lost market share over the year, according to Kantar.

Why I think this is a great business

Morrisons is unique among the big UK supermarkets because it owns most of its supply chain. It has abattoirs, food production facilities, and even grows some of its own produce. This ‘vertically integrated’ strategy has given the group a couple of advantages over its rivals in recent years.

The first is that exposure to unfavourable foreign exchange rates on imports has been minimised. The second advantage is that the company has a built-in wholesale business. It’s using this to become a major supplier to the convenience store and online markets, without having to buy or run any stores. Deals to supply McColl’s stores and Amazon show me the value of this approach.

Why I’d buy this stock

There’s no guarantee that this year’s special dividend will be repeated — and without this payout, the yield would be just 2.7%.

However, this payout is underpinned by genuine free cash flow, reducing the chances of a cut.

Morrisons’ £5.3bn market cap is also backed by £4.1bn of tangible net assets, including property and plant worth £7.2bn. Net debt fell by a further £221m to £978m last year, which I see as a comfortable level. The risk of financial problems seems very low to me.

Against this stable backdrop, growth is expected to remain ahead of inflation in 2018/19. Analysts are forecasting earnings per share growth of 8% this year, with a corresponding 8% dividend hike. This puts the stock on a forecast P/E of 17.4 with a prospective yield of 2.8%. I believe this could be a profitable entry point for a long-term buy-and-hold investment.

The post Why Wm Morrison Supermarkets plc is a FTSE 100 stock I’d hold forever appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The recovery plan initiated under chief executive David Potts — who will mark three years at the helm in the spring — has certainly been impressive. By improving the chain’s product ranges, its customer service experience, and belatedly entering the online space, Potts has finally turned around the fallen giant’s flagging fortunes.

Indeed, after enduring four years of successive earnings falls, these measures finally got Morrisons firing again with a 40% earnings rise in the year to January 2017.

And with sales rising (up 2.2% in the 12 weeks to January 28, according to latest Kantar Worldpanel data), and Morrisons still doubling-down on cost-cutting measures (it announced the axing of 1,500 management roles earlier this month), City analysts expect profits to continue improving.

A predicted 11% rise for fiscal 2018 is expected to be followed with rises of 9% in each of the following two fiscal periods.

Competition on the march 

However, I’m concerned that these forecasts could be derailed by the steady expansion of Aldi and Lidl. Kantar advised that takings at these discount chains subsequently exploded 16.2% and 16.3%, respectively, in the latest three month period, growth that nudged Morrisons’ market share down 20 basis points to 10.7%.

And the steady fall in real wage growth is likely to attract more and more shoppers to the value chains, heaping more pressure on Morrisons’ already-pressured margins as it attempts to compete on price.

A forward P/E ratio of 17.3 times fails to reflect the FTSE 100 firm’s still-murky long-term earnings outlook, in my opinion. So despite the efforts of Mr Potts, I for one will not be investing any time soon.

A better Footsie selection

I’d be much happier splashing the cash on Informa (LSE: INF), my confidence having been bolstered by Wednesday’s blockbuster full-year results.

The events organiser and publishing colossus advised that revenues jumped 30.7% during 2017, to £1.76bn, a result that propelled adjusted pre-tax profit 29.4% higher to £486.4m.

Last year’s performance paid testament to the success of Informa’s four-year ‘Growth Acceleration Plan’. The programme helped all four of its divisions report growth last year, including its Knowledge & Networking division which flipped back into underlying sales growth.

At group level, Informa reported underlying revenues growth of 3.4% in 2017. And it has plans to improve this to 3.5% in 2018 as it doubles-down on product and platform investment and takes steps to bolster its international presence.

City brokers are expecting Informa’s long-running growth record to keep rolling with rises of 3% in 2018 and 5% next year. And in my opinion, the takeover of FTSE 250 business-to-business events specialist UBM will boost the company’s geographic and market footprint still further and should, in turn, provide the basis for earnings growth to step up a gear looking further down the line.

I reckon the Footsie play’s forward P/E ratio of 14.5 times is a bargain given its exceptional growth credentials.

The post A FTSE 100 turnaround stock I’d sell for this growth star appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended UBM. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Total retail sales (excluding fuel) for the 15 weeks to 6 January grew by 1.2%, and on a like-for-like basis by 1.1%. Grocery sales were up by 2.3%.

Chief executive Mike Coupe said: “We delivered an excellent operational performance across the Group, with great availability, strong customer satisfaction scores and our lowest level of waste ever at Christmas.“

So why would I not buy Sainsbury shares? Modest rises like these must be tempered by the inflation levels of the past year — though Mr Coupe reckons food price inflation should start to ease over the next six to nine months.

Trounced by Lidl

And on the same day, Lidl reported not just an improved December’s trading, but a record one with a 16% rise in sales — and among the figures for Christmas comestibles, I was particularly struck by the chain’s sales of 600 tonnes of Brussels sprouts.

Sainsbury’s online sales were impressive, showing an 8.2% rise, and that’s where it does have an advantage over Lidl and Aldi (along with its other sector rivals like Tesco and Asda). But although that’s a growing sales avenue, it’s still very competitive and it’s very easy for shoppers to chop and change between online suppliers.

Sainsbury shares picked up a little on the news, to 252p, which puts them on a forward P/E of 13.5 based on full-year expectations — though a fall in EPS is predicted. With a return to EPS growth pencilled in for the following year, we’d see that multiple drop to a little over 12, and dividend yields look pretty decent at around the 4% to 4.5% level (and well covered by earnings).

But we’re looking at a very competitive business with tightening margins as we continue in what’s increasingly becoming a tough economic period with little or no real wages growth. If I wanted to invest in the sector at all, I’d go for the best performing stars — but I can’t, because they appear to be Lidl and Aldi, so I’m out.

Morrison too

Wm Morrison Supermarkets (LSE: MRW) is in the same boat after its trading update on Tuesday revealed an even better 2.8% rise in like-for-like sales over the 10 weeks to 7 January.

And forecasts suggest a turnaround is in the making here too, ahead of Sainsbury. Morrison actually recorded a 40% improvement in EPS for the year to January 2017, though that did come after a four-year slump, and earnings still came in at less than half of 2013’s figure.

Still, there’s a 10% rise expected for the current year, followed by a further 7% next year, and the dividend recovery is expected to continue with yields of 2.8% and 3% respectively on today’s 229p share price. But forward P/E multiples, at 19 for this year and 17 next, look too high to me. 

The squeeze on Morrison from Lidl and Aldi can surely only get tighter, as shoppers are responding to their reducing spending power by focusing on low prices — and Lidl is planning to open one new store a week in the coming years, while Morrison is still thinking about cost savings.

Wm Morrison does have a hand in the expanding online shopping business — I’ve used it, and it’s good. But we’ve got Amazon muscling in on that space too these days.

The post Why Lidl’s success would make me dump J Sainsbury plc appeared first on The Twelfth Magpie.

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Alan Oscroft has no position in any shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Morrisons’ like-for-like (LFL) sales excluding fuel rose by 2.8% over the 10 weeks to 7 January. Retail performance was particularly strong, with LFL sales up 2.1%, beating City forecasts for LFL growth of 1%.

Growth plans

Rival Tesco believes there are opportunities in the wholesale market and recently completed the acquisition of FTSE 250 wholesaler Booker Group. This will dramatically expand Tesco’s penetration into the convenience store market and allow it to make inroads into the restaurant sector.

Morrisons CEO, David Potts, appears to see the same opportunities. But Mr Potts has taken advantage of his firm’s sizeable food production business to expand its wholesale activities without needing to spend precious cash on acquisitions.

After trials last year, the Bradford-based supermarket is now starting to supply all 1,650 of the convenience stores operated by FTSE 250 firm McColl’s Retail Group. This will give it exposure to this important growth sector without requiring much additional investment.

A long-term buy and hold

Today’s trading statement confirmed the supermarket group’s existing financial guidance for the year ending 29 January. Based on analysts’ consensus forecasts, we can expect adjusted earnings of around 12.2p per share for 2017/18, putting the stock on a forecast P/E of around 19.

That’s certainly not cheap given the tough competition in the supermarket sector. However, these shares offer a reasonable 2.6% yield and I believe the group’s low-cost growth and improving profitability means this could be a good stock to buy and hold.

It could be the right time to buy

Shares of global advertising group WPP (LSE: WPP) have fallen by 30% over the last year, due to concerns over its long-term growth potential.

The sell-off has left shares in this business priced modestly, on a forecast P/E of about 11. The dividend yield of 4.6% should be covered twice by earnings, providing some protection from a cut.

The big risk is that conditions for the group will continue to worsen, resulting in earnings downgrades. So how likely is this?

A mixed picture

WPP’s revenue rose by 1.7% during the first nine months of the year, excluding the effect of changing exchange rates. However, this figure includes acquisitions made during the period. On a like-for-like basis, revenue fell by 0.7% during the first nine months to 30 September.

Business doesn’t seem to be booming. But nor is it collapsing. The group’s operating margin was unchanged during the first three quarters of last year, and analysts expect after-tax profits to have risen by around 10% to £1,534m during 2017. New business wins were also quite strong during the first nine months of last year.

Financially, the advertising giant’s performance has remained fairly strong. One particular attraction is the trailing price/free cash flow ratio of 11, highlighting strong cash generation.

On balance, I believe WPP’s modest valuation and market-leading scale could be a buying opportunity. I’m considering buying a few shares for my own portfolio.

The post Morrisons isn’t the only dividend stock I’d hold for the next decade appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Booker. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

It finally bounced back from four successive annual earnings dips in the year to January 2017, a year in which it punched a 40% bottom-line improvement. And the number crunchers are expecting further double-digit growth in fiscal 2018, a 12% rise currently being touted, as well as a 7% earnings advance in fiscal 2019.

But the road to sustained profits growth is littered with obstacles. The disruptive influences of Aldi and Lidl have long been a problem for Morrisons and the rest of the so-called Big Four supermarkets, and with inflation on the gallop and millions of Britons’ salaries still stagnating, the market share of the discounters is likely to keep on surging.

The ambitious expansion schemes of these firms is exacerbating the problem still further as Lidl UK head Christian Härtnagel is aiming to open one new store every week in the coming years, he told The Telegraph during the summer.

Problems at its bricks-and-mortar stores are not the only problem though, with Morrisons also facing an uphill battle to keep sales generated in the critical online marketplace on an upward slant. Amazon has been steadily upping the attack in this most competitive retail segment, while the rest of the established operators have also been spending a fortune to improve their cyberspace operations.

Morrisons is likely to have to continue on a path of earnings-destructive price slashing to stop sales from plummeting again, a dangerous situation given that the cost of filling its shelves is also on the rise.

And as such there is far too much risk facing current broker forecasts, a situation that is not reflected by a slightly-toppy forward P/E ratio of 17.7 times.

International giant

I reckon those seeking solid earnings growth would be much better off stashing the cash in Prudential (LSE: PRU).

The life insurance giant has proven its mettle as a dependable earnings generator, and City brokers are expecting profits growth to keep rolling for some time yet. A 6% rise is forecast for 2017, and another 9% rise is anticipated for next year.

It is quite easy to see why the Square Mile is so bullish when it comes to Prudential’s profits possibilities. Particularly exciting is the firm’s strong foothold in Asia where booming population growth and rising personal income levels drive demand for insurance and savings products. The FTSE 100 business saw new business profit in these territories leap 15% in January-September to £1.62bn.

However, Asia is far from the be-all-and-end-all for Prudential as business continues to roll in from other parts of the globe. In the US, the business is also benefitting from the investment needs of the so-called baby boomer generation, a trend that drove new business profit 17% higher in the first nine months of 2017, to £619m.

I do not believe Prudential’s brilliant long-term prospects are reflected by a low forward P/E ratio of 13.5 times. But the Footsie giant’s exceptional growth possibilities are not the only reason to invest today as dividends also appear on course to keep skipping northwards.

In 2016 The Pru is anticipated to pay a 47.8p per share dividend, up from 43.5p last year, and this is expected to rise again to 51.6p in 2018. These projections yield a healthy 2.6% and 2.8% respectively.

The post A FTSE 100 growth stock I’m avoiding like the plague appeared first on The Twelfth Magpie.

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Royston Wild has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.