J Sainsbury plc’s Dividend Prospects For 2014 And Beyond

G A Chester analyses the income outlook for J Sainsbury plc (LON:SBRY).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of supermarket J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US).

Should you invest £1,000 in Sainsbury's right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Sainsbury's made the list?

See the 6 stocks

Dividends past

The table below shows Sainsbury’s five-year earnings and dividend record.

  2008/9 2009/10 2010/11 2011/12 2012/13
Underlying earnings per share (EPS) 21.2p 23.9p 26.5p 28.1p 30.7p
Dividend per share 13.2p 14.2p 15.1p 16.1p 16.7p
Dividend growth 10.0% 7.6% 6.3% 6.6% 3.7%
Dividend cover 1.61x 1.68x 1.75x 1.75x 1.84x

As you can see, Sainsbury’s has increased its dividend every year for the last five years. The average annual increase comes out at 6.8% — well ahead of inflation. You may also have spotted the trend of rising dividend cover.

Sainsbury’s found it necessary to slash its dividend by 50% for 2004/5, as a result of a collapse in earnings. Under new management, earnings have recuperated, and the board has been gradually increasing dividend cover — that’s to say, lifting the dividend at a slower rate than EPS. The target is to have the dividend twice covered in the medium term.

A solid dividend-growth performance — while increasing the safety of the dividend with more robust cover.

Dividends present

For the current year (ending March 2014), the company has already declared an interim dividend of 5p a share, reflecting the board’s policy of paying 30% of the prior full-year dividend at the halfway stage.

Analysts are expecting a final dividend of 12.6p when the company announces its annual results on 7 May– giving a 2013/14 full-year payout of 17.6p (up 5.4% on last year). Meanwhile, underlying EPS is expected to rise by 7.5% to 33p, increasing dividend cover to 1.87.

At a share price of 390p, Sainsbury’s current-year dividend represents a yield of 4.5%.

Dividends yet to come

Analysts have pencilled in Sainsbury’s 2014/15 dividend to rise by 4% to 18.3p, with EPS rising 6.1% to 35p. That would see dividend cover edging up again — to 1.91 — keeping the company on track to meet the medium-term target of a twice-covered dividend.

With the prevailing dividend-cover policy, and with Tesco‘s dividend currently static and Morrisons‘ earnings forecasts being unpromising for serious dividend increases, there’s every incentive for Sainsbury’s to err on the side of modest dividend growth — perhaps even a little below analyst forecasts.

A further factor suggesting that caution on the dividend could be prudent is the mounting pressure on the middle-market supermarkets from high-end Waitrose and Marks & Spencer, and discounters Aldi and Lidl; and the risk that an increasingly desperate Tesco could launch a damaging price war.

Sainsbury’s shareholders can be optimistic about at least modest annual dividend increases, until such time as the dividend-cover target has been reached. However, if we are seeing a structural shift to more intense competition in the supermarket sector, modest dividend growth — by which I mean a little ahead of inflation — may be the norm, even in benign economic times.

Should you invest £1,000 in Sainsbury's right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Sainsbury's made the list?

See the 6 stocks

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> G A Chester does not own shares in any company mentioned. The Motley Fool owns shares in Tesco and has recommended shares in Morrisons.

More on Investing Articles

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »

Investing Articles

Are Trump’s tariffs a once-in-a-lifetime chance for ISA investors to get rich?

The £20,000 Stocks and Shares ISA limit will reset on 6 April. Smart investors could use current market volatility to…

Read more »

Investing Articles

Here are the latest Persimmon share price and dividend forecasts

Our writer looks at the latest forecasts for the Persimmon share price and considers what level of dividend the stock…

Read more »

British Pennies on a Pound Note
Investing Articles

Up 900%, could penny share Kodal Minerals have further to run?

Over five years, this penny share has increased in value by a factor of 10. Could the latest news persuade…

Read more »