TESCO has announced a dividend for the first time in three years as the supermarket giant “awoke from its slumber” with a huge profits surge following a focus on price reductions and service.

The group’s performance in the six months to August 26 saw revenue climb £800 million to £25.2 billion, with pre-tax profits reaching £565m, up from £71m in the same period last year.

Since chief executive Dave Lewis was appointed in 2014 to lead the recovery of the still dominant but dented Tesco brand, he has led a resurgence which has focused on keeping down prices and improving the customer offering.

In 2015, Tesco reported a pre-tax loss of £6.4bn, which was put down to an erosion of its competitiveness.

The group has now recorded seven consecutive quarters of growth, helped in part by rising food inflation, and aided by a 0.3 per cent volume growth led by a 1.5 per cent lift in fresh food sales.

UK like-for-like sales climbed 2.2 per cent in the period. If this continues in the second half it will mark a second year of like-for-like growth following a seven-year decline.

Tesco’s pre-exceptional operating profit rose 27.3 per cent to £759m, ahead of analyst expectations.

In announcing a 1p dividend, the first the company has paid out since becoming embroiled in an accounting scandal which is now the subject of an ongoing fraud trial, Tesco said the payout “reflects improved performance and board confidence”.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “There are not many things more telling about the health of company than its ability to pay a dividend, and Tesco’s return to the register after a three-year hiatus speaks volumes about the progress the company has made. It’s only a small amount, but this token payment is symbolic in nature.”

The company has issued guidance of a 2p final dividend, with targeted cover of around two-times earnings continuing in the medium term.

Mr Lewis said the group continued to make strong progress. “Sales are up, profits are up, cash generation continues to strengthen and net debt levels are less than half what they were when we started our turnaround three years ago,” he said.

“All of this is possible because of the focus we have placed on serving shoppers a little better every day,” he added. “Our offer is more competitive and more customers are shopping at Tesco.”

Retail analyst Kantar WorldPanel put Tesco’s market share at 27.8 per cent for the 12 weeks to September 10, down from 28.1 per cent the previous year, as Aldi and Lidl continue to lure shoppers from the Big Four. The Kantar numbers also show that Tesco has stretched its lead over second-placed Sainsbury.

Tesco noted that market conditions were challenging with inflationary pressure being felt throughout the half. But the company said it had worked hard with suppliers to minimise price increases for customers.

Tesco said its overall sales inflation in the half was around one per cent less than that of the rest of the market. Business in its larger Extra stores increased by 1.6 per cent. Online sales were up 4.6 per cent.

John Ibbotson, director of the retail consultancy Retail Vision, said: “The giant has woken from its slumber, and then some. Dave Lewis has ... achieved the delicate balancing act of increasing margins while barely raising prices.

“In the current inflationary environment this is a huge feat and one of the key reasons cash-strapped customers have been returning to the retail giant in large numbers.

“The secret of his success has been to work with fewer suppliers and then use Tesco’s formidable buying power to drive down their prices.”

Tesco’s £3.7bn acquisition of wholesaler Booker remains in the hands of the competition authority. Mr Lewis made a move for the company in January, but has faced shareholder discontent over the move, with some investors calling it a distraction.