When looking for quality companies listed on the ASX, Woolworths Limited (ASX:WOW) is one of the clear standouts. Woolworths has reliable, defensive earnings, generates strong cash-flows, has a strong balance sheet and generates high return on equity. Here are five reasons why Woolworths will continue to make a great long-term investment.
1. Over the past decade, Woolworths has generated annual earnings per share growth of more than 15%, along with an increasing dividend. Few ASX blue chip companies can demonstrate such a record, especially considering the impact of the global financial crises. I would expect this pattern to continue going forward, making it one of the safest long-term investments on the ASX.
2. Woolworths gives investors the best of both worlds. The stock is a growth stock which also has strong defensive attributes and pays a growing dividend amount.
3. Woolworths is the clear leader in the Australian supermarket space, having a 22% greater trading area than rival Coles. By 2020, Woolworths estimates that the Australian supermarket trading area will expand from 2.2 to 2.8 million square metres. With an increasing store roll-out and growing population, sales will continue to grow at a solid rate.
4. Woolworths has diversified into home improvement in a joint venture with US giant, Lowe’s. The Australian home improvement market is fragmented where the current market leader, Bunnings, currently only has a 16% market share. Therefore, there is large scope for Woolworths to grow into the lucrative home improvement market.
5. Woolworths has the lowest cost structure in the sector as a result of its huge scale and therefore generates high margins relative to its competitors. This results in high cash flow which funds further expansion and acquisitions.