J Sainsbury (LSE:SBRY) is one of the UK market's biggest companies. But how have long-term investors fared?
Some of the biggest companies in the FTSE 100 (UKX) run schemes where investors can take dividends in the form of new shares instead of cash. This is known as a Dividend Reinvestment Plan (DRIP), or 'scrip' dividends.
If the company in question pays a large and increasing dividend, such reinvestment can quickly compound the size of your shareholding higher.
Using dividend data on Sainsbury's (LSE: SBRY), you can see how the income produced by this family favourite has made dedicated shareholders richer.
| Shares owned | Dividend | Dividend per share (p) | Shares purchased by DRIP scheme | New holding |
|---|
| 1,000 | 2003 interim | 4.22 | 16 | 1,016 |
| 1,016 | 2003 final | 11.36 | 42 | 1,058 |
| 1,058 | 2004 interim | 4.33 | 14 | 1,072 |
| 1,072 | 2004 final | 11.36 | 45 | 983* |
| 983 | 2005 interim | 2.15 | 7 | 990 |
| 990 | 2005 final | 5.65 | 19 | 1,009 |
| 1,009 | 2006 interim | 2.15 | 6 | 1,015 |
| 1,015 | 2006 final | 5.85 | 17 | 1,032 |
| 1,032 | 2007 interim | 2.4 | 5 | 1,037 |
| 1,037 | 2007 final | 7.35 | 12 | 1,049 |
| 1,049 | 2008 interim | 3 | 7 | 1,056 |
| 1,056 | 2008 final | 9 | 32 | 1,088 |
| 1,088 | 2009 interim | 3.6 | 11 | 1,099 |
| 1,099 | 2009 final | 9.6 | 32 | 1,131 |
| 1,131 | 2010 interim | 4 | 13 | 1,144 |
| 1,144 | 2010 final | 10.2 | 33 | 1,177 |
| 1,177 | 2011 interim | 4.3 | 12 | 1,189 |
| 1,189 | 2011 final | 10.8 | 39 | 1,228 |
| 1,228 | 2012 interim | 4.5 | 18 | 1,246 |
| 1,246 | 2012 final | 11.6 | 45 | 1,291 |
* adjusted for share consolidation
My figures are based on someone that owned 1,000 Sainsbury shares 10 years ago. Here is how dividend reinvestment has rewarded the company's investors.
Just over 10 years ago, shares in Sainsbury's were around 329p each. If an investor bought 1,000 shares and kept on reinvesting the dividends, that shareholding would have grown to 1,291 shares today. So, an outlay of £3,290 in 2002 would now be worth £4,351.
The total return is even better than that. In 2004, Sainsbury's distributed 35p per share to its shareholders. This followed the disposal of its US supermarkets business. This was essentially a 10.6% special dividend to the hypothetical investor that had bought at 329p two years earlier. The shares were then consolidated 7:8.
The disposal of the US operations preceded a disappointing period for dividend reinvestors. The Sainsbury's payout was cut and the share price took off. This meant that the dividend stream was now buying back far fewer shares.
The financial crisis reversed this trend. In one year, the Sainsbury's share price halved. Yet Sainsbury's were rapidly increasing shareholder dividends. The effect was a dramatic ratcheting upward of the number of shares that could be purchased using dividend cash flows.
The Sainsbury's dividend has been increasing year-on-year since 2005. This has been thanks to 31 successive quarters of sales growth at the company. In the last five years, that dividend has been increased at an average of 10.7% a year.
Sainsbury's shares are now expected to yield 4.9% for 2013. This means that a £3,290 investment in 2002 could now yield £213 for the year. Another 6.1% dividend increase is expected for 2014, increasing the compounding effect of the DRIP further.
Sainsbury's perhaps looks more of a buy now than at any point in the last 10 years. The business has real momentum. The dividend yield is high and rising. A forward price-to-earnings ratio of 11.5 is far less than the market average, and two years of growth are forecast.
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> David does not own shares in Sainsbury's.
