Why the Metcash (ASX:MTS) share price is in focus

The Metcash Limited (ASX: MTS) share price is one to watch after a trading update and change in dividend policy for the Aussie conglomerate.

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The Metcash Limited (ASX: MTS) share price is on watch today after a trading update from the Aussie conglomerate.

Why is the Metcash share price on watch?

The Metcash share price is worth watching after the group's investor day saw a trading and dividend policy update.

In its Food segment, Metcash remains "positioned as an alternative" to the majors like Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW). This includes focusing on retailer competitiveness and retaining market share gains.

In Hardware, Metcash said it is a "clear #2 in the market" with a strong trade focus. In Liquor, Metcash also said it remains a clear #2 with its Independent Brands Australia (IBA) network of ~2,700 stores. Strong retail sales growth through the coronavirus pandemic has helped to boost earnings.

Metcash reported a strong balance sheet and underlying cash flows. That has laid a platform to fund growth plans and boost investor returns.

The Metcash share price is one to watch following today's update. Shares in the Aussie group have delivered strong shareholder returns ahead of the S&P/ASX 200 Index (ASX: XJO) and its peer group on a 5-year basis.

Metcash cited increased "at home" activities like cooking, DIY maintenance and beverage consumption as key growth drivers. An increased preference for shopping locally has also helped to boost Metcash's sales.

The conglomerate reported strong sales momentum for all business segments so far in the second half of 2021. Supermarket, hardware and liquor sales have all jumped by double digits compared to the prior corresponding period.

This strong momentum has provided the board with more flexibility in its capital management plan.

Metcash also announced an increased target dividend payout ratio. Metcash will increase the ratio from 60% to 70% of underlying net profit after tax, effective FY2021.

Foolish takeaway

The Metcash share price is one to watch today after the company's latest trading update. It will be interesting to see how the group's shares perform during early trade following news of the increased dividend payout ratio and strong trading update.

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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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