Forget the Tesco share price! This FTSE 100 dividend stock’s a better bet for retirement riches

How long will Tesco plc’s (LON: TSCO) share price continue to fall? Quite a while, Royston Wild says, so he reckons this FTSE 100 (INDEXFTSE: UKX) stock’s a better buy today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

These are testing times for Tesco (LSE: TSCO) and its share price. Down 17% over the past year and there’s little reason to see it doing anything but continuing to sink, at least in this Fool’s opinion.

Look, I get it. For some investors, grabbing a slice of Britain’s biggest retailer may appear too good to be true. It might not be the all-conquering monster of yesteryear, but Tesco still has the scale to make a big impact on the grocery market. Besides, in chief executive Dave Lewis it has a leader whose genius has already dragged the supermarket off the canvas once before.

And right now, the FTSE 100 giant offers up, on paper at least, some terrific value. At current prices, it changes hands on a forward P/E ratio of 12.7 times, below the broader blue-chip average around 14.5 times. No wonder dip buyers have emerged to take Tesco away from its recent eight-month share price lows.

Under pressure

I’m not so sure that the share price erosion of recent times has fully run its course, however.

Times are extremely tough for Britain’s retailers as Brexit considerations damage consumer confidence and cause them to tighten the pursestrings. Latest Kantar Worldpanel data illustrated this perfectly, showing domestic grocery market sales contracting 0.5% in the 12 weeks to July 14. This was the first time the market had declined since mid-2016.

It’s anyone’s guess as to how long cross-market pressure lasts as the chances of a calamitous no-deal Brexit grow. For Tesco, however, the bigger threat to its growth prospects — certainly in the long term — comes from an increasingly-competitive grocery sector that’s crushing margins and destroying its once-loyal customer base.

A blue chip to retire on

Clearly Tesco will require Herculean levels of effort, boatloads of cash and more than a pinch of good fortune to turn around its failing fortunes. So numerous, and frankly colossal, are its troubles that I’m not backing it to return to its former glories any time soon, if at all.

WPP (LSE: WPP), on the other hand, is a FTSE 100 fallen giant I believe has all the tools to recover its previous might.

He’s been in charge for less than a year, yet under chief executive Mark Read, the business is making terrific progress in cutting the bloat and casting aside the scattergun approach of industry veteran Martin Sorrell. Divestments have been stepped up to create a sharper business with less debt on the books, and there have already been 44 since May 2018. WPP’s also overhauled its product to provide a more ‘integrated’ service to its clients and doubled-down on the fast-growing digital advertising market too.

It might be too early to say that the broader ad market’s bouncing back, but major contract successes with the likes of eBay, Instagram and L’Oréal suggests that WPP has one foot back on the road to recovery. And I reckon things will only get better as the business continues on its three-year turnaround plan.

A side note: at current prices WPP trades on a sub-10 forward P/E ratio and carries a corresponding dividend yield of 6.2%. Such readings reinforce my belief that it could generate some seriously-brilliant shareholder returns in the years ahead. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has the following options: short October 2019 $37 calls on eBay and long January 2021 $18 calls on eBay. The Motley Fool UK has recommended eBay and 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.

More on Retirement Articles

Businesswoman analyses profitability of working company with digital virtual screen
Investing Articles

1 dividend-growth stock I’d tuck away in my SIPP without hesitation

This income growth stock increased its dividend by over 700% in the last decade! Is it worth adding more shares…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Here’s how I’d target a £23k second income with £300 a month

If I was building a shares portfolio today, here's how I'd go about it. With these strategies I stand a…

Read more »

Investing Articles

How I’d invest my first £1,000 in a SIPP

Investing the first £1,000 in an SIPP can be a daunting process, especially for new investors. Zaven Boyrazian explains what…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »

Investing Articles

How I’d invest within a SIPP to target a 7% dividend yield

Zaven Boyrazian explains the steps he’d take to target a high-yield, income-generating SIPP for 2024 and beyond by investing in…

Read more »

Investing Articles

No pension at 50? Here’s my SIPP investment plan to target £16k a year in passive income!

With disciplined saving, a solid investment plan and the tax benefits of a SIPP, it’s possible to turbocharge pension growth…

Read more »

Young woman holding up three fingers
Investing Articles

These 3 investing steps could make me an £11,680 passive income!

If I was starting out on my investing journey, here's how I'd try to build a robust passive income with…

Read more »

The words "what's your plan for retirement" written on chalkboard on pavement somewhere in London
Investing Articles

Small SIPP at 55? I’d take these steps to boost my retirement savings

With a consistent savings plan, sound strategy, and some wonderful tax relief in a SIPP, it’s possible to massively grow…

Read more »