Since September 2020, the J Sainsbury (LSE:SBRY) share price has risen over 60%. After a topsy-turvy couple of years, it’s now (1 September) at 301p and not far off reaching its highest level for a year. And if it could break through the 310p barrier, it would also be at a five-year high.
But I believe there are three reasons why it could still rise further.
1. Expanding market share
Despite facing fierce competition, the retailer has managed to increase its market share. When presenting its July trading update (for the 16 weeks to 21 June), the group said it was at its highest level for almost a decade. At the same time, it reported increased like-for-like sales across all of its divisions – grocery, general merchandise (including clothing) and Argos.
The grocer attributes its success to offering great value for money and outstanding quality, having excellent product availability and for providing leading customer service.
It also sold its banking division during the period. Instead of offering financial products to customers, it means it can now focus on — what I believe — it does best.
| 12 weeks ended | GB market share (%) |
|---|---|
| 10.8.25 | 15.0 |
| 11.8.24 | 14.9 |
| 13.8.23 | 14.5 |
| 14.8.22 | 14.6 |
| 15.8.21 | 14.9 |
| 16.8.20 | 14.8 |
2. Generous dividend
In respect of the 52 weeks ended 1 March 2025 (FY25), the retailer declared a dividend of 13.6p. This implies a current yield of 4.5%. But analysts are forecasting this to climb to 16.2p by FY28. If they’re correct, the forward yield is 5.4%. The FTSE 100 is presently offering a return of 3.4%.
With most economists expecting interest rates to fall over the coming months and years, income investors could be attracted to a stock offering an above-average yield. However, it must be acknowledged there are no guarantees when it comes to dividends.
3. The right sector at the right time
The supermarket industry has many defensive qualities that could help the Sainsbury’s share price during these uncertain times.
The group sells goods that people will always want to buy, irrespective of wider economic conditions. Although they may substitute cheaper brands for more expensive ones, including supermarket own-label varieties, they will usually continue to buy that particular product.
This means their earnings and cash flows tend to be fairly stable. And, in theory at least, less likely to deliver surprises (up or down).
Potential risks
But there are some challenges. The group derives nearly all of its income from the UK and Ireland. And although the supermarket sector usually copes better than most during a downturn, it’s not totally immune from the effects of a struggling economy. Ireland’s doing okay at the moment but it only accounts for a small fraction of Sainsbury’s business. By contrast, the UK economy appears fragile.
Also, the sector is notorious for its tiny margins. In FY25, the group recorded an underlying retail operating margin of just 3.17%. This suggests there’s little room to engage in significant price discounting should the need arise. News of the latest supermarket ‘price war’ is never far from the headlines.
I’m also unconvinced by its ‘Aldi Price Match’ initiative. Surely this puts the idea into the minds of shoppers that one of its rivals is — generally speaking — cheaper?
However, at the moment, Sainsbury’s is growing and appears to have found a formula that’s countering the threat of the discounters. Therefore, for the three reasons outlined above, investors could consider adding the grocer to their portfolios.
