Today I am looking at why I believe J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) is a shrewd stock pick for those seeking bumper returns.
Tills keep on ringing
The storming success of budget retailers such as Lidl, as well as high-end grocery specialists including Waitrose, continues to eat away at the mid-level supermarket space. But while the likes of Tesco and Wm. Morrison keep on struggling with their sales resuscitation plans, Sainsbury’s continues to thrive despite this aggressive fragmentation of the UK grocery sector.
Indeed, latest statistics from researcher Kantar Worldpanel revealed that Sainsbury’s revenues advanced 2.7% during the 12 weeks to February 2, outpacing growth of 2.4% for the wider grocery market. This also pushed the firm’s market share to 17.1%, up from 17% during the same 2013 period and to within a hair’s breadth of Asda — Britain’s second-biggest supermarket — which holds a 17.3% share.
Multi-pronged approach paying dividends
Sainsbury’s devotion to developing the quality and image of its own-brand products — in particular its Taste the Difference range, which saw sales rise 10% during quarter three — is helping to defend its place in the market while its peers continue to toil.
Most notably, however, Sainsbury’s has aggressively ramped up its exposure to red-hot growth sectors. The company is seeing sales at its convenience outlets rise 18% per year, and opened 19 smaller stores during the third quarter to facilitate further growth. Sainsbury’s is also reporting solid expansion of around 10% per annum for its online business, widely identified as the next hot growth area for Britain’s retailers.
A dependable pick at great prices
Sainsbury’s has been a reliable stock for both growth and income investors for many years now, and City brokers expect the supermarket to continue churning out decent returns well into the future.
Forecasters anticipate earnings to rise 5% in the year concluding March 2014, with advances of 6% and 5% expected in the following two years. These projections push the P/E rating from 10.8 for the current year to 10.2 in 2015 and 9.8 in 2016, moving below the value threshold of 10.
And the company is also expected to keep its impressive, multi-year run of dividend increases rolling during the period — a 5.4% rise to 17.6p per share is expected this year, and which is predicted to rise to 18.2p next year and to 18.7p in 2016. Such prospective payments carry mammoth yields of 5%, 5.2% and 5.3% respectively, easily surpassing the 3.2% FTSE 100 forward average.