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3 reasons to stick with your Woolworths Limited shares

It’s hard to believe but the falls which occurred back in September seem like a distant memory with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rallying around 3% in October. Calendar year-to-date the index is now showing a 2% gain – admittedly not much to write home about but a better situation than investors were facing a month ago.

Certainly some big name stocks haven’t been left behind in October. One blue-chip which has had a good performance is leading supermarket retailer Woolworths Limited (ASX: WOW). Its share price has gained 4.4% this month which in fact accounts for nearly all the gains (which total 5.6%) achieved over the course of 2014.

While the absolute returns aren’t particularly exciting, Woolworths is still outperforming the index. That outperformance becomes even more pronounced the longer the time frame, which is important for shareholders to keep in mind. In fact, there are a number of reasons to remain positive about the outlook for Woolworths’ business.

Earnings growth continues – For the 2014 financial year (FY), normalised earnings increased by 6.1% to $2.4 billion. This earnings growth was achieved due to ongoing momentum in Woolworths’ food and liquor business which registered improved comparable sales and expansion of its market share.

New store roll-out continues – Woolworths expanded its footprint across Australia over FY 2014 with the net opening of 34 new supermarkets and 11 new Dan Murphy’s stores. The group also continued to grow its online presence with sales now over $1.2 billion. Woolworths’ massive market share allowed it to serve an average of 21.1 million customers per week, an amazing feat when you consider the population of Australia is approximately 23.7 million.

Capital management – In FY 2014 Woolworths invested in developing its logistics and technology platform to position its online offering for the future; the group also made the strategic decision to sell and leaseback $600 million of Hotel property which adds to the $1.4 billion of property divested in FY 2013. Perhaps most importantly for shareholders however, the board also declared 137 cents per share in dividends, represented a 70% payout ratio of earnings.

An even better bet than Woolworths

Many investors, especially SMSFs, happily hold Woolworths' shares in their portfolio. The rock solid, fully franked dividends and growth options are certainly exciting. There is another stock which I also think deserves a place in an investor's portfolio...in fact, Top Motley Fool investment advisor Scott Phillips has just named this stock his #1 dividend-paying stock for 2014-2015. With solid growth prospects and a fat, fully franked dividend, this ASX stock could be a huge winner for your portfolio. Discover the name and code FREE by clicking here now.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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