If you search the FTSE 100 for firms paying big dividends, at some point your attention is bound to settle on supermarket operator J Sainsbury (LSE: SBRY).

At today’s share price around 243p, the forward dividend yield runs near 4.4% for year to March 2018 — enough to get the pulse racing of any self-respecting dividend hunter. But are Sainsbury’s dividends built to endure, or is there trouble ahead?

Trouble in the sector

I’m sure that by now, you don’t need me to tell you that the stock market-listed supermarket sector as a whole has hit a difficult patch. Changing consumer habits are driving the rise of disrupting and deep-discounting competition from fast-growing competitors, particularly from Aldi and Lidl.

As a value-oriented income-seeking investor, should you be that worried? After all, out-of-favour and down-on-their-luck businesses are the raw material for generating decent, high-level dividends — without a bit of trouble or uncertainty dragging share prices down, we probably wouldn’t see high dividends at all.

Maybe, but I’m cautious. This time it could be different and I know you’ve probably heard that one before, but really, it could. The figures coming out of the sector keep pointing to a seemingly relentless trend. The latest research from Kantar Worldpanel has it that during the 12 weeks to 14 August 2016, Lidl and Aldi grew like-for-like sales by 12.2% and 10.4% respectively. Meanwhile, Asda’s sales were down 5.5%, Morrisons’ eased by 1.8%, Sainsbury’s fell 0.6% and Tesco lost 0.4%.

If such figures were isolated I wouldn’t worry, but we’re getting similar outcomes month after month. Aldi and Lidl are disrupting the sector and pulling the rug from under cosy business models that previously delivered high profits for the London-listed supermarkets such as Sainsbury’s.

The dividend has been falling

Without diving into esoteric figures we can gain a good idea about the health of a business by looking at the directors’ decisions about dividends. We can gauge what the top people in an organisation think about cash flows and future prospects of their businesses simply by looking at the dividend records. Sainsbury’s directors reduced the dividend for the last two years and City analysts following the firm expect a further dividend cut this trading year with the dividend being held flat next year. 

That’s not good. The best dividend investments involve firms having a strong record of rising dividends year-on-year with an expectancy that such rises will continue into the future. Yet Sainsbury’s can’t raise or maintain its dividend payments because of weakening cash flow from operations. Net cash from operations has fallen every year for the past five years. That’s strong evidence that the firm’s battle to retain its market share is taking a huge toll on profitability. I’ve seen enough. Sainsbury’s existence as a viable business is under threat, so the firm doesn’t make the grade as a safe dividend investment, in my opinion.

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Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.