Prediction: here are the Tesco share price and the dividend forecast for next Christmas
The Tesco (LSE: TSCO) share price has had a jolly good 2025. It’s up 20% over the last 12 months, and a stunning 97% over three. But will investors be in good cheer this time next year as well? Iâm not so sure. I’m beginning to question whether the FTSE 100 grocery giant can maintain its recent blistering pace.
The supermarket sector is insanely competitive. One slip, and rivals pounce. Tesco has one big advantage, and that’s its sheer scale that allows it to strike attractive deals with suppliers. Its market share now stands at 28.2%, way ahead of second place Sainsburyâs at 15.7.
FTSE 100 power struggle
The traditional supermarkets face a huge threat from German discounters Aldi and Lidl, but with their share at 10.6% and 8.2%, respectively, theyâre still way off the pace.
Tesco still has to bust a lung simply to hang on to what it’s got. The latest threat comes from a price war, as Asda looks to regain lost ground. Tesco’s margins are already wafer thin at 3.9%, the last thing it needs is a further squeeze.
Another issue is that the cost-of-living crisis is dragging on. While consumer price inflation retreated to 3.6% in October, food inflation accelerated to 4.9%. The supermarkets are supporting consumers by slicing prices and beefing up promotions, but there are costs.
Tesco also has to absorb the hike to employerâs National Insurance contributions. As the UK’s biggest employer with 300,000 staff, this was a major blow. The minimum wage jumped by an inflation-busting 6.7% at the same time. It will climb another 4.1% next April. For workers aged between 18 and 20, the increase will be 8.5%. All of this tightens the margin squeeze.
Yet despite these threats, Tesco still lifted sales by 5.9% in October, beating Sainsbury’s at 5.2% and Aldi with 4.4%. Lidl and Ocado Group beat them all though, posting double-digit growth.
Growth and income outlook
After their strong run, Tesco shares now sit on a price-to-earnings ratio of 16.2. Not so expensive, but not so cheap either. Have they got room for growth? The 12 analysts offering one-year forecasts produce a median share price target of 475.8p. That’s a modest rise of around 5% today. Given the challenges out there, that doesn’t surprise me. I suspect Tesco shares are due a quiet year, after recent exertions.
The rising share price has knocked Tesco’s trailing dividend yield to just 3.02%, below today’s FTSE 100 average of around 3.25%. On the plus side, analysts expect the yield to nudge up to 3.16% in 2026. Combined, we’re looking at a total potential return of around 8%, which would turn a £10,000 investment into just over £10,800. Long-term investors can’t really complain, given the success they’ve enjoyed. But it’s a bit humdrum after recent magic.
I still think Tesco shares are worth considering, but with a long-term view. The short-term outlook seems a bit sticky, but in the longer run the grocery giant remain a key portfolio hold. Investors wanting faster growth prospects, or a higher rate of income, can find more explosive stocks elswhere on the FTSE 100
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Harvey Jones has positions in Ocado Group Plc. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
