Shares of supermarket giant Woolworths Limited (ASX: WOW) underperformed the S&P/ASX 200 (ASX: XJO) (Index: ^AXJO) by a whopping 10.5% in 2014.
Unfortunately they could be set to do it again with its shares already down 4.4% in 2015, versus a rise of 7% from the market.
There's a number of plausible reasons which could justify the selloff. Some of the more popular include:
- An ongoing price war between Woolworths and Coles – owned by Wesfarmers Ltd (ASX: WES)
- Continued losses from its Masters home improvement business
- Growing competition from international rivals like Costco and Aldi
However there are also a number of reasons to think why now, with shares having fallen 21% over the past year, is a great time to buy Woolworths.
Here are three of my favourite.
- Shares are offering a forecast dividend yield of 4.75% fully franked.
- The company continues to forecast profit growth.
- The value proposition has become much more compelling. Woolworths needn't shoot the lights out with profit growth to make its current share price worthwhile.
Should you buy, hold, or sell Woolworths shares?
To steal a slogan from its most recent marketing campaign, at below $30 a pop it seems Woolworths shares are "cheap cheap" and likely have more to gain than lose. In addition to being a defensive income stock – it has increased its dividend payout every year for the past decade – there's reason to believe that its share price could move higher, over time.
Indeed, whilst risks persist, if the Masters business can start to show some likelihood of future profits, Woolies can successfully navigate its way into financial services and continue to grow its dividend payout. This will likely prove to be the opportune moment to have bought into one of Australia's favourite blue chip stocks.
