If you don't already own shares in Woolworths Limited (ASX: WOW), now is the time to buy.
Shares in the supermarket giant have been pushed to two-year lows by investor concerns of slowing growth, tight margins and increasing competition, but the market seems to be forgetting the serious upside Woolworths holds.
So here's a quick reminder, with four reasons Woolworths is an outstanding buy in my view:
It's cheap!
By all accounts Woolworths is a bargain.
A defensive company with an enviable history of shareholder returns, Woolworths would usually command a premium share price. However after recent weakness the current share price is equal to just over 15-times 2014's earnings. This is lower than competitor Wesfarmers Ltd (ASX: WES) at around 18 times earnings, as well as blue-chip star Telstra Corporation Ltd (ASX: TLS) at 17.6.
It's growing faster than inflation
Woolworths is a relatively mature company, but continues to invest into new growth streams for sustainable, long-term growth.
Importantly for you, an investor growing your wealth, the company continues to grow faster than inflation. Net Profit After Tax (NPAT) grew by 4.2% in FY14, whereas Consumer Price Index (CPI) inflation, reported by the Australian Bureau of Statistics, plodded along at 2.3% for the 12 months to September, 2014.
By contrast a Commonwealth Bank of Australia (ASX: CBA) 'NetBank Saver' account currently offers just 2.5% per annum, before tax, potentially eroding spending power.
Woolworths' growth is expected to continue. In November Chairman Ralph Waters reaffirmed profit guidance for the year ahead targeting NPAT growth of between 4% and 7%, specifically noting that "the market appears to have drawn conclusions about the Company's outlook that your Board does not share". This is great news.
It's a simple business to understand
In his classic book One Up on Wall Street: How to Use What You Already Know to Make Money in the Market legendary investor Peter Lynch suggests investors should "buy what you know".
Most people know Woolworths and retail businesses follow a simple, easy to understand model; buying goods from suppliers, adding a margin and selling to the customer. Woolworths does this in three main areas: grocery products, alcohol and building supplies.
It pays a significant dividend
Woolworths has a strong history of dividend growth. Over the last five years the company has grown its dividend by 19%, around the same growth rate as earnings per share (eps).
The falling share price has pushed Woolworths' dividend yield up to 4.5% and it comes fully franked, a fraction higher than competitor Wesfarmers, making now an exciting time to buy.
