MENU

Are Woolworths Limited shares a dividend delight?

Woolworths Limited (ASX: WOW) shares are being tipped by analysts to pay a dividend of 3.2%. Its forecast dividend yield is notably less than its blue chip peers, such as Commonwealth Bank of Australia (ASX: CBA), Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES).

Screen Shot 2017-03-21 at 1.30.32 pm

However, there might be more to Woolworths shares than the dividend. One useful way to get a quick sense of the value in a company’s shares is to weigh up the reasons to buy and the reasons to sell.

Reasons to buy Woolworths shares

In recent years, the Woolworths share price has been on a rollercoaster ride as the company navigated into a turnaround. 

As the company’s share price fell from almost $38 to below $21 in two years, Woolies sold Masters and its Home Timber and Hardware businesses. It slashed prices, got rid of management and is now a leaner, more focused business.

Woolworths is also fighting back against Coles, owned by Wesfarmers Ltd (ASX: WES), and Aldi. Both supermarket operators appear to have stolen market share away from Woolies in recent years.

However, with Woolworths again on the front foot and a new management team at the helm, some investors might argue it is time to run the ruler over the company.

Reasons to sell Woolworths shares

While it could be a good time to buy, the words of legendary investor Warren Buffett should ring loud and clear whenever you hear the word ‘turnaround’. As Buffett says, “turnarounds seldom turn”. Buffett bought shares in UK-based Tesco plc, a supermarket operator. The investment cost him hundreds of millions of dollars.

Aside from that warning, Woolworths is also staring down the barrel of further competition, especially from Coles and Aldi. But online operators are also making a move – Amazon is rumoured to be eying off Australian retail. Although Amazon’s arrival would likely hurt fashion retail and the likes of JB Hi-Fi Limited (ASX: JBH) more than grocery retailers, it is something to consider.

Another key risk to Woolworths’ turnaround is that its brand revival takes longer than many expect because consumers will be reluctant to go back into its stores.

Buy, Hold or Sell

Woolworths’ dividend yield is a little underwhelming, in my opinion. Although it could be in the midst of a turnaround, with more than 2,000 shares on the ASX, I would rather build a portfolio of other quality ASX dividend shares.

How to draw a steady DIVIDEND paycheque even after you retire...

We get it - trying to replace a consistent paycheque after years of relying on it is a scary prospect for millions of Australian investors. Will your savings last long enough? Will you be able to maintain the lifestyle you've become accustomed to? How do you draw enough income without tapping your portfolio directly?

These are just a few of the thousands of questions that investors like you have.

But only one answer is necessary: Motley Fool Australia's brand-new "ultimate income solution" - Motley Fool Everlasting Income.

To see how Everlasting Income could quickly and easily set you up to pay yourself monthly paycheques like $1,667... $2,500... even $3,333... or more - before this first-ever purely income-based service from Motley Fool Australia opens in a matter of days - just click here.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Amazon. 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.

HOT OFF THE PRESSES: My #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 Financial Services Guide (FSG) for more information.