Today we look at the Woolworths Group Ltd [ASX:WOW] share price, which has recently started to go off the boil.
Here are key takeaways:
- The story of the WOW share price rise
- Retail sales bounce was driven by panic-buying
- Investors may have underestimated the impact of the pandemic on income
- ‘Safe’ dividend plays may be harder to come by
- These five ASX dividend stocks across a range of sectors could have promise
Let’s pull up the Woolworths share price chart for the last 12 months to see what’s happened:
A strong run-up through to late February, a sharp sell-off following the spread of COVID-19, a big lurch upwards in mid-March and subsequent sideways action.
A shift to ‘perceived’ non-cyclical, fear and toilet paper
I think the run-up in the Woolworth’s share price had something to do with its perceived safety.
Cast your mind back to 12 months ago, where I believe there was a shift in market sentiment going on.
This is the chart for the Big Four which includes Westpac Banking Corporation [ASX:WBC], National Australia Bank Ltd [ASX:NAB], Australia and New Zealand Banking Group Ltd [ASX:ANZ] and Commonwealth Bank of Australia [ASX:CBA]:
This was for the period between May 2015 and September 2019.
You can see the mediocre performance laid bare. Although this doesn’t include dividends, you can imagine it would be pretty much flat for this period where they factored in.
The WOW share price charge up the charts began in earnest from a low in July 2016.
My thesis is that this was exactly that change in sentiment — the search for yield.
The bank stocks were a staple for so long — steady returns and the cornerstone of many a portfolio.
The usual sales pitch.
At the time, I thought it was a completely irrational move.
But it makes more sense now.
Woolworth’s dividends in perspective
WOW’s has a long history of dividends.
There was a growing amount of fear in the major mastheads about the fragility of the economy post-GFC.
I dare say most would not have tipped a virus to be the trigger. It was Italy’s debt, or the housing bubble or even collateralised loan obligations (CLOs).
I’ll admit, when I was tempted by bearish thoughts these narratives certainly played their role.
Back to Woolworths, the shift from income from bank stocks to income from a grocery store chain made sense.
It’s a supposedly non-cyclical stock, it doesn’t rely on good times for earnings.
People have to buy groceries.
The key here, I think, is that even at the grocery store a lot of disposable income gets bled on luxury products.
The good cheese, the steak — it’s no wonder that pasta was running out constantly at peak fear.
The staples are not likely to sustain a grocery store chain, lower margins, less revenue are just part of the picture.
The hit to Aussie income is hard to understate in this pandemic and it flows through to product choices and panic buying of toilet paper of course.
This is reflected in Coles chief Steven Cains comments recently published in the AFR:
‘Value is going to go to the top of the agenda ’
Coles saw a 12.9% increase in retail sales over the most recent quarter, on the back of panic.
The WOW share price may now be reflecting the short-lived nature of this bounce in sales.
It’s dividend yield stands at 2.9%, after a recent interim dividend of 46 cents was paid last month.
It’s not much, but with dividend investors scrambling to find something, anything, this may explain the sideways action for the WOW share price in the last month.
With a P/E of 17.5, at time of writing its stabilised in a more normal range for now.
Back at its high in February, it could have been as high as 30 at one point.
Tech-stock stuff…for a supermarket.
Assessing Woolworths as an income option…
It’s still hard to go past the paltry yield — potentially a significant amount [of] risk for being in an equity at this time, with it locked in a range.
Especially if there is another leg down for markets.
So if you are looking for income or just trying to wrap your head around the market, I’ve got a great selection of resources for you.
Our editors may not all agree, but take a close look at these resources if you enjoyed today’s look at the Woolworths share price:
Vern Gowdie’s ‘Five Stocks to Sell Now’ (there’s a good chance you may own them).
In particular, Greg Canavan’s brand new ‘Five Dividend Stocks Set to Thrive in the Post-Pandemic Era’ report.
And if you simply want to hold onto your savings, Vern Gowdie’s in-depth report on the topic is a must read.
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