J Sainsbury (LSE: SBRY) shares looked super-cheap back in October 2022. Since then, they’re up more than 60%.
Although the price is only up a modest 8% over five years, the dividend yield still looks good.
The dividends are already back above 2019 levels, with a forecast yield of 4.9%. Have I had my eyes on rival Tesco too much and missed a great alternative income stock?
Wobble
Forecasts suggest a wobble in 2024, with earnings and the dividend dipping a bit. But they show things back on course for 2025 and beyond.
There is risk there. Three years out is a long time, and a lot could go wrong by then.
The sector faces a tough time right now. Inflation and costs are both putting pressure on margins. And there’s a risk of shoppers moving to the cheapies like Lidl and Aldi. And once they go, they just might not come back.
Results, outlook, costs
For me, a lot will hinge on FY results for the year to March, due on 27 April. I want to see what the board’s outlook is, and how the firm is handling costs.
Q3 looked fair, with retail sales (excluding fuel) up 5.2%. Like-for-like sales grew 5.9% too. But that doesn’t really show the true state of things. Inflation has pushed up prices and that will be the cause of much of the rise in pound terms.
Still, the firm did describe its sales volumes as “relatively resilient”.
Xmas tidings?
Those sales are for the 16 weeks to 7 January too, and that covers the Christmas shopping period. I do need to see how the full year went to get a feel for whether I should buy Sainsbury shares in my ISA.
A down year, or even a year or two of weak dividends, are of little consequence to me. I buy shares for the long term, and I don’t want to take the cash just yet. All I do with income now is save it up to buy more shares.
The firm could keep the dividend steady if it wanted. But it really doesn’t make a lot of difference. What it doesn’t pay this year can be paid in later years when earnings are higher. As long as it all helps me build a retirement pot, I’ll be happy.
Value buy?
So will I buy? No, at least not now. And it’s all about value.
When a stock faces a tough year, I want to see the share price fall and the price-to-earnings (P/E) ratio drop.
But J Sainsbury shares are up this year. And the P/E is about 14-15 for the next two years.
Tesco, meanwhile, has a P/E of 12 for 2024, and dropping. So Tesco does look to me like the better value stock right now.
Future dips
I might still buy J Sainsbury one day. But not right now. I’ll wait and keep my eyes peeled for better value in the future.
It’s just a shame I failed to spot the chance when the shares were down in the dumps late last year.
