Could the Christmas trading period have been the turnaround point for the UK’s beleaguered supermarkets?

According to market research firm Kantar Worldpanel, J Sainsbury (LSE: SBRY) was the only one of the big four that reported sales and market share growth during the holiday period, with Tesco (LSE: TSCO), Wm Morrison Supermarkets (LSE: MRW) and Asda (owned by US giant Wal-Mart) failing to achieve those two key milestones.

Not that bad?

Although Sainsbury’s total retail sales in its third quarter to 9 January grew by 0.8% (excluding fuel), like-for-like sales actually dropped by 0.4%. Still, in the seven days leading up to Christmas the slightly upmarket supermarket saw a 2.6% rise in consumer transactions over last year, to more than 30m.

Over at Tesco, meanwhile, UK like-for-like sales in Q3 dropped by 1.5% (excluding fuel), although the six weeks to 9 January saw a 1.3% rise. International sales did significantly better with a like-for-like rise of 4.1%, but that’s a shadow of its former importance as Tesco has been withdrawing from troubled overseas markets and focusing on the UK.

Morrison saw total sales fall 1.2% in the nine weeks to 3 January, though like-for-like sales rose slightly by 0.2% (again excluding fuel). That’s not too impressive, but the firm did say: “We are beginning to attract customers back to Morrisons, with the LFL Number of Transactions up 1.3% year-on-year in our core supermarkets“. Online sales grew nearly 100%, but that was from a very low base.

Price recovery?

Tesco’s share price has perked up by 14% since 7 January, which is easily the best of the three. Morrisons shares are up 8% since 5 January, while Sainsbury shares have lost 6% in the same timescale. The reason for these relative performances seems to be that Tesco performed better than (or at least not as badly as) expected, and analysts really do seem to think the only way is up. They have a 45% drop in EPS pencilled-in for the year ending February 2016, but expect a 78% recovery the following year, though that does still represent a two-year fall overall.

And P/E multiples of 31 this year followed by 17 next don’t give me the same bullish feeling that the City seems to have right now.

I feel pretty much the same about Morrisons, which is also expected to see EPS return to growth in the year to January 2017 to give us a P/E of 14. In this case the analysts are similarly bearish. Sainsbury has easily the lowest forward P/E ratings, at around 11, but we’re still being told to expect falling EPS at least until March 2016, and that doesn’t fill me with an urge to go buying the shares.

No good reason to buy

The real reason I still wouldn’t go anywhere near these supermarkets is that I see much better bargains out there. Lloyds Banking Group is on a P/E of only 8 with dividend yields expected to rise above 5% this year, and Barclays is on a P/E of only 7.3 with dividends expected to yield 3.6%. Then we have Royal Dutch Shell and BP. Their share prices have slumped but they should recover strongly when oil picks up (and in the meantime they seem keen to keep paying very high dividends).

No, I wouldn’t buy supermarkets now, simply because there really is no need to.

In these troubled times, it's hard to beat the idea of putting your money into top dividend-paying companies with progressive cash-handout policies, which have the potential to lift your income year after year. Our newest report, A Top Income Share From The Motley Fool, reveals a company that might just fit that bill.

It's a company with a market cap of around £500m, so it's not a high-risk tiddler, and dividends have been growing very strongly over the past few years.

Want to know more? Click here to get your completely free copy of the report delivered to your inbox today.

Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays and Royal Dutch Shell. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.