Up 45% in 6 months! Is this red-hot dividend growth winner the ultimate FTSE 100 dark horse?
The FTSE 100 contains plenty of thoroughbreds, but not all of them catch the eye. Some surprise us all by making a late dash for the line and ending up among the winners. One such dark horse is J Sainsbury (LSE: SBRY). Itâs usually in the shadow of firm favourite Tesco, yet lately itâs been on a gallop.
The Sainsburyâs share price has surged 44% in the last six months, with its charge starting around 9 April, when Donald Trumpâs tariff pause triggered a global stock market rally.
Over 12 months, itâs up 25%, and over three years, itâs gained almost 90%. I didnât see that coming, having placed my bets elsewhere.
Iâve inspected this stock many times over the years, usually seeing it as more of a steady income stock than a growth play. It often yielded 4% or 5%, which tempted me, but the grocery trade is fiercely competitive and Tesco seemed far ahead in the field. Back then I thought Sainsburyâs would struggle to keep pace. How wrong I was.
Sainsburyâs shares and sales jump
Latest Worldpanel data shows supermarket sales were healthy in the 12 weeks to 7 September as shoppers stocked up on back-to-school basics and own-brand ranges.
Sales at Sainsburyâs rose 5.4%, giving it 15.1% of the overall market. However, it trailed Tesco, where sales jumped 7.7%, lifting its market share to 28.4%.
Sales at Ocado Group and Lidl both gained over 11%, while Asda lost ground. The problem now is that Asdaâs trying to recapture lost ground by launching yet another sector price war at a time when margins are already razor-thin.
The cost-of-living crisis has left shoppers more price-sensitive than ever, as inflation remains sticky. Sainsburyâs faces higher wage costs after Aprilâs rise in employerâs National Insurance contributions and a 6.7% hike to the Minimum Wage. It employs around 150,000 staff, so those extra costs soon add up. This is an issue across this grocery sector.
Dividend growth disappoints
Sainsburyâs’ trailing yield is 4.1% today, which is pretty good given how the share price has raced ahead. But its dividend record isnât exactly sparkling. The 2025 payout rose 3.8% to 13.6p, but was flat at 13.1p for the previous two years. Over the past decade, the compound annual growth rate’s a measly 0.3%, with three dividend cuts along the way.
Consensus forecasts donât inspire either, with analysts producing a one-year target price of 327p, roughly 3% below current levels. While forecasts can’t be relied upon, that suggests the easy gains may have been made.
A steady long-term runner
At a price-to-earnings ratio of 14.5, Sainsburyâs isnât expensive. Yet after such a strong run, I think the pace might slow. Investors seeking diversification could still consider buying for the long term, particularly if thereâs a dip. A stronger economy, lower interest rates and happier shoppers would all help but, for now, I suspect the race may be getting a little sticky.
Still, for a stock I’d once written off as a FTSE 100 also-ran, Sainsburyâs has shown it can move when it wants to.
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Harvey Jones has positions in Ocado Group Plc. The Motley Fool UK has recommended J Sainsbury Plc and Tesco Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
