WOW share price in focus
Founded in 1924, Woolworths is a leading retail operator in Australia and New Zealand, with over 3,000 stores and more than 100,000 employees. As one of Australia’s largest companies by revenue and market share, Woolworths plays a significant role in the region’s retail sector.
The company’s core operations include supermarkets (operating under the Woolworths brand in Australia and Countdown in New Zealand), discount department stores under the Big W brand, and business-to-business (B2B) services through brands like PFD. However, Woolworths’ dominant 35%+ market share in the Australian grocery sector remains its key strength.
Woolworths is also a popular choice among ASX investors looking for dividend income. It has a strong track record of paying fully franked dividends, typically offering yields over 3%, and its revenue base, largely derived from consumer staples, provides a stable and defensive earnings stream. The company’s competitive edge lies in its scale, enabling efficient distribution and cost control, as well as its proximity to consumers, as many shoppers continue to choose supermarkets based on convenience and location.
The appeal of ASX Consumer Staples shares
The S&P/ASX200 Consumer Staples Index (ASX: XSJ) has delivered returns of -1.24% per year over the last 5 years. That compares to the broader ASX 200 which has returned 3.73% per year over the same period. Let’s explore why a consumer staples company like WOW could be a smart choice for your portfolio.
Big dividends
Consumer staples companies aren’t typically known for rapid growth, but where they usually excel is in providing consistent dividend income. Over the past 5 years, WOW has offered an average dividend yield of 2.92% annually.
This steady payout is linked to the nature of their business, which brings us to the next reason investors favour consumer staples companies…
Resilience
No company or sector is totally immune to recessions, but consumer staples companies are often better equipped than others to weather economic downturns. When the economy hits tough times (which is inevitable), discretionary spending always takes the hit first. Demand for staples remains relatively stable in comparison. This resilience can give companies like WOW a notable advantage over more cyclical secotrs during a downturn.
Lower volatility
Another key benefit of consumer staples companies is their lower market volatility. Because the demand for their products and services is consistent, these businesses are less subject to economic cycles than sectors like resources and commodities.
Companies like Woolworths or Coles also have high market share which tends to give them more pricing power, so they can act as a price maker instead of a price taker. So, consumer staples companies can bring some stability to a diversified portfolio.
WOW share price valuation
The S&P/ASX200 Consumer Discretionary Index (ASX: XDJ) has generated returns of -1.24% per year over the last 5 years. That’s compared to 3.73% per year from the broader ASX 200. The consumer discretionary sector covers a wide range of goods and services, so it can be hard to compare companies in this group. However, there are a few things you might want to consider when investing in a consumer discretionary company like WOW.
Economic environment
Consumer discretionary companies usually experience their best performance when interest rates are low. It’s fairly intuitive – when interest rates are low, you’re more likely to go out and buy those ‘nice-to-haves’ or things that you may not really need, but you certainly want. That could be the latest iPhone, a European vacay or that Ryobi power drill you’ve always wanted – it all comes under this category.
Despite the current high interest rate environment, WOW has still managed to grow revenue by 6.8% per year over the last three years.
Dividends
The dividends you’ll receive can vary with the current economic environment, but historically many of the big ASX consumer discretionary shares have been reliable dividend payers.
WOW offers a current dividend yield of 4.7% and over the last 5 years has averaged 2.9%.
Familiarity
We often hear the mantra, ‘invest in what you know’. If you take that to heart, consumer discretionary companies could make a lot of sense. These companies tend to be household names and brands you see everyday.
You probably have a better idea how Woolworths Group Ltd make their money then some niche tech company or a B2B industrials company. This doesn’t necessarily mean performance will be any good, but they’re definitely easier to get your head around when you’re new to investing.
