Bernstein recommends shopping for Morrisons, regardless of what 'sell-side' says

Although the grocer's free cash flow yield was set for a 'step-down' in growth from the 9% pace observed over the past four years to something closer to between 8% and 9%, it had grown profits and sales for two years in a row and "none of that is running out of steam", they said.

It also sported the lowest gearing in the sector.

Adjusting for leases its net debt was at just twice operating earnings and if you credited the £600m pension asset then its net debt was zero, the analysts also said.

Hence the analysts' projection for the firm to ramp up its pay-out ratio from 83% last year to 100% over the next few years.

On Bernstein's estimates, Morrisons was set to see its dividend yield rise to 6.3% next year, followed by growth of 7.0%, 7.4% and 9.0% in successive years.

"With the doubling of the cash pay-outs and the ample cash-cover, MRW will become a great income stock attracting new investors. Besides a high divi, it is a low beta stock (people keep eating in a downturn, they simply switch to PL) and positively impacted by higher inflation. It fits perfectly our Quant/Strategy team's focus on dividend yield stocks."

"It is the only stock where sell-siders systematically upgrade earnings. It is the underdog of food retail, where execution beats strategy."

On the back of all the above, the broker upgraded its recommendation for the shares from 'market perform' to 'outperform' and bumped-up its target price from 235p to 245p.