The Woolworths Group Ltd (ASX: WOW) share price has had a great 2019 so far. Woolworths shares started the year trading for $29.15 but today WOW shares are going for $34.15 (at the time of writing) – a YTD increase of more than 17% (not including dividends). So why is the market so bullish on Woolworths? And more importantly, is Woolworths a buy today?
A refresher on Woolworths
Woolworths is Australia's largest supermarket chain, with more than 990 stores across the country. The supermarket giant also owns the discount retailer Big W as well as Endeavour Drinks and ALH Hotels. Endeavour Drinks is the company behind the popular Dan Murphy's and BWS bottle shops, while ALH Hotels owns a network of pubs and bottle shops (predominantly located in Queensland).
What's to like about Woolworths?
As you can see, at the present time Woolworths is a diversified, consumer staples juggernaut. The current sharemarket is putting a premium on companies that are seen as 'safe dividend payers', and Woolworths definitely fits this bill. Groceries and alcohol form a huge chunk of the average Aussie's weekly budget, and Woolworths has the largest slice of the grocery market pie, making it an intrinsically defensive stock.
Woolworths has shown the power of its branding by being able to hold its market share in the face of ever-increasing competition from arch-rival Coles Group Ltd (ASX: COL) as well as the German-owned Aldi chain. Woolworths (in my opinion) has an enviable reputation for quality food at affordable prices and this gives Woolworths a valuable advantage as a company.
Woolworths announced plans earlier this month to spin off Endeavour Drinks and ALH Hotels into a separate company, keeping the Endeavour name. Combined, these two businesses have an estimated revenue of around $10 billion, with $1 billion of underlying earnings. If the 'new' Endeavour is spun off as an ASX business (the demerger mechanism hasn't been confirmed), it will likely become a formidable dividend payer in its own right. If this was to occur, existing Woolworths shareholders would likely receive Endeavour shares in addition to their current WOW holdings.
Foolish takeaway
If existing Woolworths shareholders were to receive shares in the spun-off drinks business, I believe this will add value to Woolworths shares today. If you are an investor that values defensive earnings and solid dividend income, I would be very tempted by these developments. I personally will be keeping an eye on how the management at Woolworths intends to proceed with the spin-off.
