Woolworths Limited (ASX: WOW) has long been considered one of Australia’s best blue-chip shares.

The company has a long and rich history of generating strong earnings and dividend growth for investors, while its name is also synonymous with the word ‘supermarket’ for many individuals — many of whom like to invest in what they know.

The fact that it receives so much media attention has also been a boon for the business’ share price over the years.

However, the company’s safe and reliable reputation has been challenged in recent times, with many investors choosing to part ways with the shares. They have fallen nearly 21% over the last 12 months to trade at $22.20, while they have lost 43% of their market value since peaking at $38.92 back in mid-2014.

Clearly, it would have been best for investors to sell out of their positions two years ago, although there are still reasons why you may want to give your Woolworths shares the axe today.

Competition

Australia’s multi-billion-dollar grocery market has traditionally been a snug oligopoly that many individuals thought would never be challenged. Unfortunately, it appears as though Woolworths’ management team was also under that impression as they forgot one of the key parts to running a successful business: the customer.

In an effort to boost margins, Woolworths was charging higher prices for the same or similar products to what its competitors were selling in their own stores. Ultimately, this activity drove customers away in search of a better deal with Coles – owned by Wesfarmers Ltd (ASX: WES). Aldi also gained much of the other market share.

Woolworths has now committed to a huge investment in its prices and service to attract customers back to its stores. It still has a lot of catching up to do, however, so this strategy could definitely take time to pan out.

Lack of Growth

While Coles is still growing sales at a reasonable pace, Woolworths’ sales are still going backwards. In the latest quarter, food and liquor sales declined by 0.9% on an adjusted comparable basis, with margins also taking a hit.

Meanwhile, the company is in the process of abandoning its Masters Home Improvement venture, while its Big W business is also struggling. All in all, the company could well struggle for growth over the coming years.

Dividends

One of the key features that investors value highest in blue-chip shares is their dividends to shareholders. Not only do they need to offer a decent yield (ideally fully franked), they also need to be considered sustainable as many investors count on them as a regular source of income.

By definition, dividends are a portion of a company’s earnings that are paid out to investors. If earnings are falling – and expected to continue doing so – that doesn’t paint a pretty picture for the dividend outlook either. Indeed, the company already cut its latest interim dividend by 34% to 44 cents (fully franked), compared to the 67 cent dividend in the corresponding period.

There could well come a time where Woolworths becomes a decent investment opportunity again, particularly if or when its supermarket division begins to improve. For now, however, Woolworths has a lot of work to do before that can happen, which means there may be better opportunities for your hard-earned investment dollars.

Why These 3 Blue Chip Shares Look Set to Soar in 2016

Forget Woolworths -- Discover The Motley Fool's top 3 blue chips for 2016. These 3 'new breed' shares pay fully franked dividends AND offer the very real prospect of significant capital appreciation. Simply click here to gain access to this comprehensive FREE investment report.

No credit card required.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.