Woolworths Group Ltd (ASX: WOW) shares have done well for long-term shareholders. In the past five years, the Woolworths share price has lifted 45%, and it's up 667% since January 1999.
As one of the biggest supermarket businesses in Australia, it's one of the most defensive ASX shares around. It also owns quite a few different businesses, including Countdown in New Zealand, Big W, business-to-business food providers (including PFD), 'retail platforms' such as Primary Connect and Cartology, and other smaller businesses such as Milkrun.
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What are the good points?
As I've mentioned, it's a defensive business, making it a solid pick that could be resilient in recessions. People still need to eat when times are tough, so demand could stay consistent.
It's the type of business that is very likely to benefit from Australia's population growth.
We learned in December 2023 from the ABS that Australia's population had reached 26.6 million in June 2023, which represented an annual growth of 624,100 people and quarterly growth of 146,800. If there are more mouths to feed, there are more potential customers for Woolworths.
The business has an incredibly strong logistics network, and it continues to invest in advanced warehouses and other areas that keep it ahead of (nearly all) the competition.
I like the diversification that Woolworths has been making. Its latest move is to buy the business that owns Petstock, which is essentially a supermarket for pets. Woolworths' expertise and scale could help it succeed in this business.
The company doesn't have the world's biggest dividend yield, but owning Woolworths shares has typically come with a decent amount of passive income. According to Commsec, the business could pay a grossed-up dividend yield of 4.4% in FY24 and 4.7% in FY25.
It has been a solid blue chip for most of the last two decades.
Negatives about Woolworths shares
It's not exactly cheap when it comes to the price/earnings (P/E) ratio, which is mostly understandable considering the defensive nature of the company. Using the projection on Commsec, which may not be 100% spot on, the Woolworths share price is at 24x FY24's estimated earnings. Is that a fair earnings multiple for a business that grew sales by 5.3% in the first quarter of FY24?
Woolworths is also getting a lot of heat about the price increases it has hit customers with amid this inflationary environment. If it cuts the shelf prices of products, Woolworths' margins reduce, and it would obviously hurt the net profit after tax (NPAT) – though suffering households would benefit.
For me, there is a possible opportunity cost. I don't think it's going to grow profit strongly over the next few years, but there are other (smaller) ASX shares that could produce stronger returns.
