Picture supply: Getty Photos
Summer time is quick approaching and I’ve been taking inventory of my portfolio after an eventful begin to the yr. This yr, the FTSE 100 Index has gained 3.9%, as I write on 6 Might, to sit down at 8,578 factors.
One space I’ve been contemplating shopping for into these days is retail. Discretionary retail shares resembling clothes manufacturers are typically cyclical as their earnings are closely tied to the economic system and client spending.
As a long-term investor, I discover it tough to get comfy with discretionary retail. It’s laborious to distinguish between an affordable inventory prepared for an enormous earnings restoration and people who could fade away.
That’s why my focus is on the patron staples sector, together with groceries. These firms have a tendency to supply important items and are extra insulated from the ups and downs of the financial cycle.
With that in thoughts, J Sainsbury (LSE: SBRY) is one FTSE 100 inventory that I feel traders ought to contemplate shopping for.
Rising grocery gross sales
Shares within the UK meals retailer have been underneath strain in 2025. The corporate’s inventory worth has fallen 2% up to now this yr to £2.70 and have managed to achieve simply 0.8% within the final 12 months.
Whereas which may be a warning signal to some, I feel seeing via near-term volatility and shopping for secure, profitable firms is the important thing to long-term investing success.
Sainsbury’s full-year outcomes have been broadly consistent with analysts’ expectations. Full-year gross sales have been up 3.1% to £31.6bn with larger grocery volumes offering a lift regardless of weaker Argos gross sales.
Free money move declined from £0.6bn to £0.5bn as the corporate’s ongoing cost-cutting train was offset by larger ranges of funding and the timing of funds to clients and suppliers.
Nonetheless, it wasn’t all excellent news for traders. Subsequent yr’s steering displays comparatively muted development expectations with fierce competitors and inflationary pressures maintaining margins low.
Sturdy dividend coverage
I like that the inventory gives a wholesome 4.8% dividend yield. That’s properly above the present Footsie common of round 3.5%. This shareholder-friendly coverage is mirrored in regular dividend payouts of 13.1p in 2024 and 13.6p for the yr ending March 2025.
There’s additionally a particular dividend and new share buyback scheme, which ought to ship £450m again to shareholders.
Valuation
Sainsbury’s shares are buying and selling at a price-to-earnings (P/E) ratio of 15.3 proper now. That’s a contact under its main competitor Tesco (16.3), which additionally has a decrease dividend yield of three.6%.
I’m cautious of some relative valuations within the area, nonetheless, with Sainsbury’s non-food phase lagging in efficiency barely and muddying the waters when it comes to an apples-to-apples comparability.
Verdict
All in all, I feel Sainsbury’s is a FTSE 100 retail inventory for traders to think about. I feel the corporate is a dependable dividend payer that has a transparent pathway ahead to develop grocery gross sales and improve free money move.
The corporate’s softer steering for subsequent yr does level to some challenges round competitors and development. Nonetheless, it’s sturdy shareholder returns ought to assist to melt that blow.
Whereas I don’t have the spare money to speculate proper now, it’s one inventory that I’ll critically contemplate to spice up my portfolio’s dividend yield within the close to future.
