Why J Sainsbury plc Should Be A Candidate For Your 2014 ISA

J Sainsbury plc (LON: SBRY) is enjoying a strong spell, and looks set for a great future.

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sainsbury'sIt’s nearly ISA time again, and when April rolls around you’ll have a whole new allowance of £11,760 to use — and if you don’t hurry, you’re going to lose whatever is left of the current year’s allowance.

So what should you consider using it for? I reckon J Sainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US) is a pretty good candidate, and I’ll tell you why. But first, I want to take a look at how it’s been doing in recent years.

An enviable record

Here’s a look at the past five years, together with three years of forecasts:

Mar EPS Change P/E Dividend Change Yield Cover
2009 21.2p +8% 14.8 13.2p 4.2% 1.6x
2010 23.9p +13% 13.9 14.2p +7.6% 4.3% 1.7x
2011 26.5p +11% 13.2 15.1p +6.3% 4.3% 1.8x
2012 28.1p +6% 10.8 16.1p +6.6% 5.3% 1.7x
2013 30.7p +9% 11.8 16.7p +3.7% 4.6% 1.8x
2014* 32.3p +5% 10.9 17.5p +4.8% 5.0% 1.8x
2015* 34.1p +6% 10.3 18.1p +3.4% 5.2% 1.9x
2016* 35.8p +5% 9.8 18.7p +3.3% 5.3% 1.9x

* forecast

Now, even without considering its suitability for an ISA, that looks like a pretty good investment to me.

Share price lagging

We’re seeing steady year-on-year rises in earnings with the share price clearly not keeping up — it’s only gained around 1% over the past 12 months, to 344p.

The P/E has been on a slow slide since 2009, and falling to under 10 based on 2016 forecasts seems almost criminally cheap to me for such a solid company in one of the safest businesses there is.

And the value is further highlighted by those dividends. Yields of 5% and better are way above the FTSE average of 3.1%, and they’re increasing faster than inflation each year — so your income from the shares should beat inflation on its own, even without any share price rises!

What might it be worth?

In fact, if the yield stayed steady at 5% for the next 20 years, and you reinvested it in more Sainsbury’s shares each year, you could turn £1,000 into £2,650 even if the share price didn’t budge.

In reality, with earnings and dividends growing, a static share price would result in ever-growing yields, and a rising share price is far more likely. So, if we were to keep that 5% dividend yield and also enjoy share price gains of 5% per year, we could turn that £1,000 into as much as £6,700 after a couple of decades!

How about the long term?

That takes me to a question that’s key to my ISA strategy — will Sainsbury’s still be going strong in 20 years?

Well, it’s been around since 1869 and has been doing pretty nicely so far, so I reckon Sainsbury’s will outlast me. That’ll do.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alan does not own any shares in Sainsbury.

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