J Sainsbury plc and SSE plc: 2 buy-and-forget dividend stocks for difficult times

Roland Head looks at the latest figures from J Sainsbury plc (LON:SBRY) and SSE plc (LON:SSE). How safe are these desirable dividends yields?

| 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.

With Brexit on the horizon, and a shock win in the US for Donald Trump, markets are likely to remain volatile for the foreseeable future. If you still need stable returns from your shares during this troubled period, it probably makes sense to focus on ‘boring’ income stocks.

I reckon that UK-focused dividend heavyweights SSE (LSE: SSE) and J Sainsbury (LSE: SBRY) could be ideal buys. Both companies issued interim results this morning. In this article I’ll take a closer look at the latest figures, and consider the outlook for each stock.

Inflation pressures hit profits

Sainsbury’s was the biggest faller in the FTSE 100 this morning, shedding more than 5% after admitting that underlying pre-tax profit fell by 10% to £277m during the first half, missing consensus forecasts of £282m.

Should you invest £1,000 in easyJet 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 easyJet made the list?

See the 6 stocks

Although Sainsbury’s reported sales rose by 1.8% to £12,642m, like-for-like sales from Sainsbury’s stores fell by 1% during the period. There was no detail on trading at Argos, which has only been part of the group since the start of September.

Second-half profits are expected to be lower than those reported for the first half, as the weaker pound means that import costs are rising. Like all supermarkets, Sainsbury’s is under pressure to keep retail prices low, which means the group’s profits margins are likely to fall. Despite this, Sainsbury still expects to meet current consensus forecasts for the full year.

This might seem unlikely, but today’s underlying earnings of 11.2p per share account for more than half of the full-year earnings of 20.5p per share shown in current market forecasts. Sainsbury only needs to generate underlying earnings of 9.3p per share during the second half in order to match current expectations. Given that this period includes the key Christmas trading season, this shouldn’t be an impossible target.

Assuming current guidance is maintained, Sainsbury’s shares now trade on a forecast P/E of 11.7, with a prospective dividend yield of 4.2%. This seems reasonable value to me.

How safe is this 5.8% yield?

SSE’s inflation-linked dividend policy is one of the cornerstones of its investment appeal. Wednesday’s interim results confirmed this policy is still in place. The interim payout rose by 1.9% to 27.4p per share. This puts investors on track to receive a forecast full-year payout of 90.5p, equivalent to a 5.8% yield.

Adjusted earnings are expected to rise slightly this year, but it seems this will be dependent on a strong winter performance. SSE’s adjusted earnings fell by 25.5% to 34.2p per share during the first half. The company said that this was due to a fall in renewable energy output, lower retail customer numbers and “an unusually high proportion” of debt interest payments during the first half.

SSE confirmed this morning that it expects to report adjusted earnings of “at least” 120p per share for the 2016/17 year, in line with consensus forecasts of 121p. This puts SSE shares on a forecast P/E of 13, with a prospective yield of 5.8%. As a long-term shareholder myself, I remain happy. I may consider adding to my holding if the share price falls any further.

Should you invest £1,000 in easyJet 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 easyJet 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.

Roland Head owns shares of SSE. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

With value investing back in vogue, I’m taking a leaf out of Warren Buffett’s playbook

With tariffs and trade wars resulting in heightened market volatility, Andrew Mackie takes comfort in Warren Buffett’s words of wisdom.

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

OMG DYOR but IMO this ‘cool’ FTSE 100 stock offers bangin’ VFM!

Despite being one of the least trendy 50-somethings around, our writer considers how Gen Z could help push this FTSE…

Read more »

Investing Articles

2 cheap FTSE 100 and FTSE 250 growth stocks to consider as stock markets sink

I think these Footsie and FTSE 250 growth shares could be very shrewd buys to consider in the current climate.…

Read more »

Investing Articles

3 shares I’ve bought in the 2025 stock market sell-off

The stock market has experienced a lot of turbulence in recent weeks. Edward Sheldon has been taking advantage and buying…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »