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Highlights
- Woolworths Group Ltd shares have declined 11.3% since the beginning of 2024.
- A2 Milk Company Ltd shares are 25.2% below their 52-week high.
- Woolworths offers a dividend yield of approximately 4.33%, exceeding its 5-year average.
Woolworths Group Ltd (ASX:WOW), one of Australia’s largest retail operators, has experienced an 11.3% decline in share price since the start of 2024. Established in 1924, Woolworths boasts over 3,000 stores across Australia and New Zealand and employs more than 100,000 individuals. The company is particularly renowned for its dominant grocery market presence, holding a market share exceeding 35% in Australia.
Woolworths operates supermarkets under its well-known brands, including Woolworths in Australia and Countdown in New Zealand. Additionally, it manages discount department stores through Big W and conducts business-to-business operations via brands like PFD. The supermarket segment, primarily composed of consumer staples, is considered the crown jewel of its operations.
As a popular choice for investors seeking dividend income, Woolworths has a history of paying fully franked dividends, typically yielding over 3%. The company's competitive edge lies in its scale and proximity to customers, allowing it to maintain a stable earnings stream.
In FY23, Woolworths reported a return on invested capital (ROIC) of 7.10%, with revenue compounding at 6.8% in recent years. While a mature business like Woolworths is expected to achieve a ROIC of around 10%, consistent performance below this threshold may indicate potential inefficiencies in capital investment.
In contrast, A2 Milk Company Ltd (ASX:A2M), founded in New Zealand in 2000, is involved in marketing dairy products that contain the naturally occurring A2 protein. The company relies on over 25 certified dairy farms across Australia for production, while its instant formula products are manufactured by supply partner Synlait Milk in New Zealand. The primary selling point of A2 Milk is its claim of easier digestibility compared to regular milk, attracting consumers who experience discomfort with conventional dairy products. Currently, A2M shares are trading 25.2% below their 52-week high, indicating potential market challenges.
For investors, Woolworths shares currently yield approximately 4.33%, above the historical 5-year average of 2.92%. This rise in yield suggests that the shares are trading at a higher value relative to historical cash flow distributions to shareholders, making it an intriguing option for those focusing on dividend income.
