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

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.

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> Alan does not own any shares in Sainsbury.