3 reasons to own Woolworths Limited (WOW) shares

Woolworths Limited (ASX:WOW) shares have dominated the market, but what does the future hold?

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The Woolworths Limited (ASX: WOW) share price has fallen 30% in three years. Yikes!

But if we zoom out a little bit, it is easy to see a different picture.

Source: Yahoo!Finance
Source: Yahoo!Finance

 

Since its initial public offering (IPO) in '93, Woolies shares have returned 890% plus dividends.

Woolworths, WOW!

Looking ahead, many investors will be left wondering if the company can return to its former glory. Here are 3 reasons to own Woolworths shares.

  1. Dividends. This one is obvious. If you buy Woolies today you stand to receive a 3.7% fully franked dividend. This is an attractive yield given current term deposit interest rates.
    P.S. if you bought and hold shares from the IPO, this year's dividend is equivalent to a yield of 35% — fully franked!
  2. A leaner business. With Masters stores gathering dust, Woolworths can focus on what it is best at: Supermarkets. While a rampaging Coles and Aldi make rebuilding the brand a little challenging, a leaner business model could prove to be profitable over the coming five years.
  3. Defensive. As a supermarket and liquor business (it also owns Big W) Woolies sells non-discretionary products, the things we need to survive. As a result it is likely to weather a downturn in the economy better than most companies.

Foolish Takeaway

At today's prices, Woolworths shares appear reasonably priced. And while some investors may believe the recent woes are a sign of things to come, I think it is important to not underestimate the company. With a sophisticated supply network and store footprint, it has a strong footing in the local market.

Ultimately, I think Woolies shares are closest to a hold if anything. Management will be forced to make some tough decisions in the future and put simply I think there are better opportunities on the ASX.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @OwenRask. Motley Fool contributor Owen Raszkiewicz 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.

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