Sainsbury’s (LSE:SBRY) shares are popular for their sizeable dividend distributions. Last year, the group paid out 13.1p per share in dividends to shareholders which, at the current share price, equates to a yield of about 7.7%.
Is the stock set to continue paying out big dividends in the years ahead? Let’s take a look at the Sainsbury’s dividend forecast for this financial year and next.
Sainsbury’s dividend forecasts
Before I reveal the dividend estimates for the next two financial years, it’s worth mentioning that the company’s fiscal year ends on 5 March. So the year ending 5 March 2023 is FY2023 while the next year is FY2024.
As for the forecasts, at present, analysts expect Sainsbury’s to pay out 12.2p per share for FY2023 and 12.3p per share for FY2024. So the payouts are not expected to be as high as last financial year.
They are still quite substantial though. At the current share price of 170p, these estimates equate to yields of around 7.2%. No doubt that kind of yield is attractive in the current environment.
Dividends may be lower
One thing I want to point out however, is that earlier this year, Sainsbury’s said that it was committing to a dividend payout ratio of around 60%. In other words, dividends are likely to be around 60% of earnings.
This is important to keep in mind. Because if profits are lower than expected, due to discounting or higher costs, for example, the dividend may not be high as expected.
Right now, analysts expect the company to generate earnings per share of around 20.8p this financial year. However, given the high level of inflation at present (Sainsbury’s just raised pay levels for some workers), it is possible that earnings could come in lower than this.
Are Sainsbury’s shares worth buying?
So would I buy Sainsbury’s shares for my own portfolio in light of the potential dividends on offer? The answer to that is actually no.
When I invest in dividend stocks, I go for companies that have consistently raised their dividends. This style of investing is known as ‘dividend growth investing’.
The reason I focus on these kinds of companies is that they tend to provide attractive total returns (capital gains plus dividends) over the long term. Generally speaking, as they increase their dividend payouts, their share prices rise too.
Looking at Sainsbury’s, it doesn’t have a long-term dividend growth track record. In recent years, its payouts have been a little up and down.
Another issue for me is the company’s lack of competitive advantage. Ultimately, there’s really nothing to stop competitors such as Tesco, Aldi, and Lidl stealing market share from Sainsbury’s. Going forward, it may need to cut prices to hold on to its customers, and that’s not a great business strategy.
So this isn’t a dividend stock I’d personally buy. To my mind, there are better stocks out there for my portfolio.