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Can Tesco shares return to pre-COVID levels after £5 billion dividend?

The Tesco share price has rallied thanks to news of a £5 billion dividend. Despite COVID-19 restrictions impacting sales, recent moves in Asia have prompted analysts to ask whether Tesco shares can return to pre-pandemic levels.

  • Tesco shares peak at 250p this week.
  • £5 billion dividend fuels latest upswing.
  • Could the Tesco share price increase by 29% this year?
  • Want to trade Tesco shares? Open an account today.

Shares in Tesco (TSCO.L) peaked at 250p this week, prompting hope that a complete recovery is on the horizon. Although shares have since dipped, today’s 240p open is still a marked improvement on the lows of 2020. The so-called second wave of COVID-19 hit Tesco shares hardest in October when their value dropped to 203p. However, since then, the UK’s vaccination programme has restored a level of optimism amongst consumers and, in turn, retailers.

Why is the Tesco share price trending upwards?

The Tesco share price was given another boost this week thanks to the announcement of a special £5 billion dividend. The company will pay existing shareholders 50p per share thanks to money gained from the sale assets in Thailand and Malaysia. Tesco will also add £2.5 billion to its defined benefit pension scheme, meaning virtually all of the £7.8 billion it earned from the sale will go back to its shareholders.

The news lifted Tesco shares close to what they were before COVID-19 struck. Analyst data collated by the Financial Times now shows an average median price target of 288p. At the top end, some forecasts predict the Tesco share price will increase 29% to 315p by the end of 2021. That would take the company’s value to a level not seen since 2014.

Is dividend enough to help Tesco shares in 2021?

It’s a testing time for retail but Sainsbury’s (SBRY.L) has also seen its share price increase this week. Speculation that a takeover might be on the horizon has sparked an uptick in interest. Although, it may be too much to suggest that supermarkets across the board are entering a positive post-COVID period. However, there is certainly heightened investment activity within the sector, which could bode well for Tesco.

There’s also good news for Tesco in Northern Ireland. Although chief executive Ken Murphy admitted there will be ‘teething issues’ with its supply chain, he confirmed that the company is committed to overcoming them. Brexit terms had threatened to disrupt trading between Tesco stores in return on investment (ROI) and Northern Ireland. However, Murphy believes the supermarket’s strength in both markets means it will continue hitting recent growth rates of 8% across the UK and Ireland.

Is Tesco a stable proposition?

By these measures, Tesco is stabilising its position in an otherwise unstable market. Divesting of business interests in Asia, and strengthening supply chains closer to home, has given Murphy cause to be positive. The £5 billion dividend has also prompted an encouraging surge for the Tesco share price. Whether or not these factors will be enough to drive shares above 300p remains to be seen. However, there appears to be support for the idea that Tesco shares could return to pre-pandemic levels in the coming weeks.

Will Tesco shares continue their recent bull run?

Take your position on UK shares for just a small initial deposit with spread bets or CFDs. Spread bets are completely tax-free, while CFDs are free from stamp duty.1 You can also buy and take ownership of UK shares for just £3 with us.2

Open an account to start trading or investing in UK shares.

1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

2 Deal three times or more in the previous month to qualify for our best rate.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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