Although Woolworths Limited (ASX: WOW) is a retailer, there is an important distinction between its primary customer base and the customer base of a retailer such as Myer Holdings Ltd (ASX: MYR).
Myer falls into the consumer discretionary sector and as the category suggests the goods which department store retailers sell are "discretionary" or "non-essential" in nature. In comparison, while Woolworths does own Big W which is often described as a discount department store, the retail giant's primary business unit is of course supermarkets and this means Woolworths falls into the consumer staples sector. This sector is categorised by its "non-discretionary" nature.
Over the past three months the share prices of many consumer discretionary stocks have been smashed. For example, Myer and Super Retail Group Ltd (ASX: SUL) are down approximately 27% each; over the same time period the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained nearly 1%.
In comparison to the performance of the discretionary retailers, Woolworths, thanks to the essential nature of the goods it sells is up 0.5%. This solid share price performance highlights the blue-chip nature of the stock. Here are three reasons why Woolworths is a great stock that you can potentially own for a lifetime.
1) Fully franked dividends – With expectations that the group will pay dividends totalling 146.5 cents per share in FY 2015, the stock is trading on an appealing fully franked dividend yield of 4%.
2) Future Growth – Management continues to look for ways to grow top line sales revenue. This includes value added services such as home deliveries, cross-selling to the customer base services such as pre-paid mobile plans and insurance, and expanding into new product areas such as hardware and home improvement.
3) Economies of Scale – The company's strong market position and size allows Woolworths to maximise efficiencies and leverage its cost base to expand its margins. Cleverly, the retailer shares these gains with customers through lower prices creating a positive feedback loop.
