Tesco (LSE:TSCO) shares have had their fair share of ups and downs in recent years. After a period of volatility, the stock has recently rebounded from a seven-month low, regaining investor confidence after a solid set of results. While not often viewed as a high-growth stock, Tesco’s long-term performance may surprise some investors.
Back in May 2022, Tesco’s share price stood at 258p. Fast-forward three years, and the stock has climbed to around 381p — an impressive gain of 47.7%. That equates to an annualised return of 13.88% purely from capital appreciation. For a traditional supermarket stock, that’s a remarkably strong showing.
However, Tesco is also a consistent dividend payer. When factoring in the dividends received over that period — assuming they were reinvested — the total return climbs closer to 67%. That means a hypothetical £10,000 investment in Tesco shares made three years ago would now be worth approximately £16,700.
A reliable dividend stock
The group continues to dominate the UK supermarket sector, holding the largest market share among the ‘Big Four’. Its Clubcard loyalty programme has been central to its strategy, helping it retain customers while collecting valuable data to tailor promotions and pricing. In an increasingly competitive market, this customer-focused model has given Tesco a meaningful edge.
On the income side, Tesco has also proven itself to be a reliable dividend payer. The dividend yield has consistently hovered around 4%, and management has backed this up with ongoing share buyback programmes, returning excess capital to shareholders while supporting the share price.
It’s not all plain sailing
The rise of budget rivals like Aldi and Lidl continues to apply pressure to Tesco’s margins, especially during times of high inflation. These challengers have grown rapidly by offering no-frills, low-cost alternatives, and Tesco has had to respond by slashing prices and streamlining operations.
In its April 2025 results, it warned of a possible dip in profits in the coming year, citing ongoing cost pressures and a cautious consumer outlook. While underlying performance remains solid, the market is now watching closely to see how well the company can defend its margins while maintaining shareholder returns.
Revenue has grown consistently for the past four years but has tapered off recently, increasing only 2.5% in 2024. Meanwhile, earnings have been volatile, losing 56% in 2022 only to rise 161% the following year and fall 2.8% in 2024. This volatility is reflected in the share price, which has swung between 200p and 400p in recent years.
Slow and steady
All eyes will be on the supermarket giant’s Q1 trading statement in June. This update is expected to shed light on how the business is performing in 2025, particularly with regard to sales volumes, inflation impacts, and any updates on capital returns.
For value investors with a long-term, defensive outlook, I think Tesco is still one of the most reliable UK companies on offer. While it may lack the excitement of tech stocks or high-growth sectors, its strong market position, dependable income and solid historical performance make it a worthy consideration in any income-focused portfolio.
And for those who bought the shares three years ago? That £10,000 investment – now worth £16,700 – proves that sometimes, slow and steady really does win the race.
