Retail and supermarket behemoth Woolworths Limited (ASX: WOW) has long been one of Australia's most popular and widely held stocks, yet it has come under significant selling pressure in recent months.
While many investors are concerned that there could be more pain to come, here are 10 solid reasons to consider investing in Woolworths now.
- Price. The stock has fallen nearly 20% over the last nine months and is now trading near its lowest price in two years. Bells should be ringing for long-term investors.
- Competition. One of the reasons behind the stock's fall from grace has been the fear of Costco and Aldi Australia threatening Woolworths' market share. That fear has been greatly overplayed by investors (read why, here).
- Sticky customers. Woolworths' rivalry with Coles – owned by Wesfarmers Ltd (ASX: WES) – has also been a concern amongst investors with analysts constantly quibbling over tiny changes in market share. In reality, the vast majority of customers will choose to shop with the same supermarket chain, meaning that any change in market share between the two should be minimal.
- Scale. Given that it commands such a dominant position in Australia's $85 billion grocery industry, it also has significant negotiating power with suppliers. While this has been criticised in the media more recently – with companies as big as Coca-Cola Amatil Ltd (ASX: CCL) being forced to lower their prices – it's certainly an enviable advantage to have.
- Growth. Despite its enormous size, Woolworths still boasts plenty of avenues for growth. As an example, it has expanded into New Zealand while Australian population growth should also ensure sustainable growth for decades to come.
- Defensive. Big name blue chip stocks are typically the best stocks to hold to solidify your portfolio. At its current price, Woolworths would make for an exceptional addition to your portfolio's foundations.
- 'Gotta eat'. Regardless of the state of the economy, 'a person's gotta eat'. While sales from its various subsidiaries (e.g. Big W, Masters Home Improvement) could fluctuate with the economic landscape, sales from its primary supermarket division should hold up well even in the worst of times.
- Earnings. To expand on the above two points, Woolworths has an incredible track record for revenue and earnings growth. In fact, over the last 10 years, it has only recorded one year of negative profit growth (2012) which came as a result of the sale of the Dick Smith Electronics business.
- Dividends. Australian investors love their dividends – especially in a falling interest rate environment. The stock is expected to yield 4.6% (fully franked) this financial year which should only increase in the ensuing years.
- Reinvestment. Better yet, the company offers a dividend reinvestment program. The ability to earn (growing) dividends on the dividends you've already been paid could significantly boost your Woolworths returns in the long-run.
Another dividend stock is posing as an even better buy than Woolworths right now.
