Tesco (LSE: TSCO) is a popular income stock and it’s easy to see why. This is a well known, blue-chip company with a history of paying out attractive dividends. Here, I’m going to share the Tesco dividend forecast for this financial year and next. I’ll also provide my personal view on the shares now.
Dividend history
Before looking at the forecasts, it’s worth discussing Tesco’s recent dividend history to put future payments in context.
Here’s a look at the payments the supermarket giant has made to its shareholders over the last five years (note that Tesco’s financial year closes at the end of February so FY2023 ended 28 February 2023).
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| Year | FY2019 | FY2020 | FY2021 | FY2022 | FY2023 |
| Payout per share (p) | 5.77 | 9.15 | 9.15 | 10.90 | 10.90 |
We can see from this table that dividend payments have generally been on the rise lately. However, the company did hold its payout flat last financial year.
The latest forecasts
As for the latest forecasts, City analysts currently expect Tesco to pay out a total of 11.6p per share for FY2024. They then expect the payout to rise to 12.9p per share for FY2025.
At today’s share price of 299p, these estimated payouts translate to yields of 3.9% and 4.3%.
Now, there’s no guarantee that Tesco will actually pay out these dividends (analysts forecasts can be off the mark).
However, what’s encouraging is that dividend coverage (the ratio of earnings per share to dividends per share) is expected to be high at around two for both financial years. This suggests there’s little chance of a major reduction to the payout.
When does Tesco pay its dividends?
It should be noted that the figures I’ve quoted above are the total payouts that are expected to be declared for those financial years.
In terms of the timing of the payments, Tesco usually pays its first (interim) dividend for the year in November and then its second one (final) in either June or July.
So, for example, if we take the 12.9p forecast for FY2025, I’d expect some of that to be paid in November 2024 and the rest in June/July 2025.
Worth buying?
Are Tesco shares worth buying today? I think so, personally.
In the years ahead, the company is expected to generate solid sales and earnings growth. For example, sales of £70.3bn are forecast for FY2025, versus £65.8bn for FY2023.
Meanwhile, the company’s valuation seems very reasonable. With analysts expecting earnings per share of 25.7p for FY2025, the forward-looking price-to-earnings (P/E) ratio is only 11.6. That’s an undemanding multiple.
Given the growth outlook and valuation, I think the company has the potential to deliver solid total returns (capital gains plus dividends) in the years ahead.
Of course, the company is facing a lot of competition today. Marks and Spencers is doing great things at the moment, while Aldi and Lidl are attracting value hunters. So, the company will need to work hard to retain its market share (roughly 27%).
All things considered though, I think the stock has a lot of appeal. If I was looking to add another defensive stock to my portfolio, I would definitely consider Tesco.
