It’s nearly ISA time again, and when April rolls around you’ll have a whole new allowance of £11,760 to use — and if you don’t hurry, you’re going to lose whatever is left of the current year’s allowance.
So what should you consider using it for? I reckon J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) is a pretty good candidate, and I’ll tell you why. But first, I want to take a look at how it’s been doing in recent years.
An enviable record
Here’s a look at the past five years, together with three years of forecasts:
Should you invest £1,000 in Sainsbury's right now?
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| Mar | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2009 | 21.2p | +8% | 14.8 | 13.2p | — | 4.2% | 1.6x |
| 2010 | 23.9p | +13% | 13.9 | 14.2p | +7.6% | 4.3% | 1.7x |
| 2011 | 26.5p | +11% | 13.2 | 15.1p | +6.3% | 4.3% | 1.8x |
| 2012 | 28.1p | +6% | 10.8 | 16.1p | +6.6% | 5.3% | 1.7x |
| 2013 | 30.7p | +9% | 11.8 | 16.7p | +3.7% | 4.6% | 1.8x |
| 2014* | 32.3p | +5% | 10.9 | 17.5p | +4.8% | 5.0% | 1.8x |
| 2015* | 34.1p | +6% | 10.3 | 18.1p | +3.4% | 5.2% | 1.9x |
| 2016* | 35.8p | +5% | 9.8 | 18.7p | +3.3% | 5.3% | 1.9x |
* forecast
Now, even without considering its suitability for an ISA, that looks like a pretty good investment to me.
Share price lagging
We’re seeing steady year-on-year rises in earnings with the share price clearly not keeping up — it’s only gained around 1% over the past 12 months, to 344p.
The P/E has been on a slow slide since 2009, and falling to under 10 based on 2016 forecasts seems almost criminally cheap to me for such a solid company in one of the safest businesses there is.
And the value is further highlighted by those dividends. Yields of 5% and better are way above the FTSE average of 3.1%, and they’re increasing faster than inflation each year — so your income from the shares should beat inflation on its own, even without any share price rises!
What might it be worth?
In fact, if the yield stayed steady at 5% for the next 20 years, and you reinvested it in more Sainsbury’s shares each year, you could turn £1,000 into £2,650 even if the share price didn’t budge.
In reality, with earnings and dividends growing, a static share price would result in ever-growing yields, and a rising share price is far more likely. So, if we were to keep that 5% dividend yield and also enjoy share price gains of 5% per year, we could turn that £1,000 into as much as £6,700 after a couple of decades!
How about the long term?
That takes me to a question that’s key to my ISA strategy — will Sainsbury’s still be going strong in 20 years?
Well, it’s been around since 1869 and has been doing pretty nicely so far, so I reckon Sainsbury’s will outlast me. That’ll do.
