Picture supply: Getty Photos
Because the FTSE 100 Index continues to climb firstly of the 12 months, I’ve turned my thoughts to potential excessive dividend shares.
UK grocery big J Sainsbury (LSE: SBRY) is one I’ve bought my eye on. I feel the corporate is value a better look given its sturdy current buying and selling and attractive dividend.
With grocery store margins squeezed and competitors fierce, the Sainsbury’s story is one I’d prefer to unpack a bit of additional to see if it’s one for earnings buyers to contemplate in 2026.
What’s taking place at Sainsbury’s?
The corporate stays the UK’s second-largest grocery store chain and a long-standing Footsie member. Its share worth has climbed 18.9% within the final 12 months to 313p as I write on 9 January, after hitting a 52-week excessive in November.
At the moment’s announcement of a bumper Christmas buying and selling interval shall be music to buyers’ ears. The corporate grew its grocery market share for the sixth consecutive 12 months in its finest Christmas interval on file.
Within the 16 weeks to three January 2026, grocery gross sales rose 5.4% resulting from buyer switching, bigger basket sizes, and standout recent meals gross sales. That included a 20% year-on-year improve in British turkey gross sales as clients invested of their festive feasts.
Sturdy money stream and payout historical past
The newest annual dividend fee was round 15.1p per share, translating right into a ahead dividend yield of 4.9% based mostly on the 313p share worth as I write. Given the Financial institution of England base fee now sits at 3.75% — the bottom stage since late 2023 — that kind of payout might be engaging to buyers.
The corporate just lately upgraded its steerage and expects to ship greater than £550m in retail free money stream for the 12 months ending March 2026. That bodes properly for dividend cowl, which is sitting at a wholesome 1.7 instances.
One other plus is that the groceries sector isn’t as weak to adjustments within the state of the economic system as others like mining or vitality. The corporate additionally has a historical past of delivering particular dividends and share buybacks after promoting non-core property in some additional shareholder-friendly behaviour.
What are the dangers?
Groceries is a low margin enterprise, and intense worth competitors, notably from low cost rivals like Aldi and Lidl, can put stress on profitability.
That margin stress might restrict the corporate’s potential to develop payouts over time. Supermarkets usually see earnings fluctuate with enter prices like vitality and transport, and there’s no assure that dividend will increase will maintain tempo with inflation or market expectations.
Earnings can be only one a part of the image throughout the Footsie. Whereas it’s nice to obtain regular earnings, different extra growth-focused shares might present higher general returns in the long term.
My verdict
The corporate’s place within the UK grocery market and its regular payout historical past make it a notable FTSE 100 dividend inventory.
A robust ahead yield and historical past of returning capital by way of particular payouts are additionally positives for earnings buyers. Nonetheless, regardless of a robust Christmas interval, the corporate remains to be working in a sector with aggressive pricing and tight margins, which might restrict dividend payout will increase.
I do suppose the inventory has a spot in a well-diversified portfolio over a long-term horizon and I feel it’s value contemplating for buyers trying to find earnings in 2026.
