Tesco to pay out £5bn special dividend as sales surge

The payout to shareholders comes even as other companies in Europe abandon dividends

Tesco will pay a special dividend as grocery sales pick up amid lockdown. AFP

Tesco maintained its plan to pay a £5 billion (Dh22.6bn) special dividend in a rare bit of corporate good news as sales soar amid the coronavirus pandemic.

Britain’s largest grocer will push ahead with the payout even as other companies abandon dividends amid a nationwide lockdown.

Tesco experienced a 30 per cent surge in revenue as shoppers reacted with panic at the prospect of a nationwide lockdown in early March, stockpiling everything from toilet paper to pasta. Demand has now stabilised, Tesco said, and most of the rationing measures it had put in place are no longer necessary.

Stock levels have stabilised as a result, Tesco said on Wednesday. The company’s expenses are increasing though as it hires more staff to make up for absences.

The shares fell as much as 7.7 per cent on Wednesday morning in London.

Tesco has added more than 45,000 employees in the last two weeks alone to help cope with demand and cover staff absences due to Covid-19. Costs will rise by £650 million to £925m pounds as a result of increased wages and higher store running costs, Tesco said.

Chief executive Dave Lewis said Tesco is in a strong position to pay out a dividend and has thousands of small investors who hold less than 1,000 shares each and rely on the payout to help supplement their incomes. “We would not be paying a dividend if we felt it would jeopardise the business in any way.”

Tesco is also taking advantage of government help, including a year’s relief from business rates and a property tax, reducing its bill by £585m.

The company is only taking government help when needed, Mr Lewis said. For example, the retailer isn’t taking advantage of an offer to defer value added tax payments and is making its £200m payment on time.