Picture supply: Getty Pictures
Summer time is quick approaching and I’ve been taking inventory of my portfolio after an eventful begin to the 12 months. This 12 months, 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 currently is retail. Discretionary retail shares akin to clothes manufacturers are usually cyclical as their earnings are closely tied to the financial system and shopper spending.
As a long-term investor, I discover it tough to get comfy with discretionary retail. It’s arduous to distinguish between an inexpensive inventory prepared for a giant 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 believe buyers ought to take into account shopping for.
Rising grocery gross sales
Shares within the UK meals retailer have been underneath strain in 2025. The corporate’s inventory value has fallen 2% to date this 12 months to £2.70 and have managed to realize simply 0.8% within the final 12 months.
Whereas which may be a warning signal to some, I believe seeing by way of 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 in step with analysts’ expectations. Full-year gross sales have been up 3.1% to £31.6bn with greater grocery volumes offering a lift regardless of weaker Argos gross sales.
Free money stream declined from £0.6bn to £0.5bn as the corporate’s ongoing cost-cutting train was offset by greater ranges of funding and the timing of funds to prospects and suppliers.
Nonetheless, it wasn’t all excellent news for buyers. Subsequent 12 months’s steering displays comparatively muted development expectations with fierce competitors and inflationary pressures maintaining margins low.
Robust dividend coverage
I like that the inventory gives a wholesome 4.8% dividend yield. That’s nicely 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 12 months ending March 2025.
There may be 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 beneath 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 house, nonetheless, with Sainsbury’s non-food phase lagging in efficiency barely and muddying the waters by way of an apples-to-apples comparability.
Verdict
All in all, I believe Sainsbury’s is a FTSE 100 retail inventory for buyers to contemplate. I believe the corporate is a dependable dividend payer that has a transparent pathway ahead to develop grocery gross sales and improve free money stream.
The corporate’s softer steering for subsequent 12 months 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 take a position proper now, it’s one inventory that I’ll critically take into account to spice up my portfolio’s dividend yield within the close to future.
