The reason why I believe this to be the case is simple. Both of these supermarket retailers provide an essential service for consumers. No matter what the future holds for the UK and global economy, humans will always need to eat and drink.
And while there are tens of thousands of smaller retailers across the country that provide access to these critical resources, the sector leaders, such as Morrisons and Sainsbury’s, have tremendous economies of scale, which means they can offer lower costs for customers and better profits for investors.
The best shares to buy now
Neither of these retailers is particularly exciting. But I don’t believe that an investment has to be exciting to yield profitable returns.
For example, over the past five years, an investment in Morrisons has produced an average annual return of 4%, including dividends. A £10k investment in the retailer in 2016 would now be worth around £13k. A similar investment in the FTSE 100 over the same period would be worth around £10.5k.
I think these figures show the retailer’s defensive qualities. The past five years have been among the most turbulent periods for the UK economy in recent memory. However, despite this volatility, an investment in Morrisons has proved to be a safe haven.
Granted, a profit of £2,500 in five years isn’t the best return in the world. Nonetheless, as a way to protect one’s portfolio against further uncertainty, Morrisons and Sainsbury’s could be some of the best shares to buy now based on this performance.
One of the best qualities of these two investments is their income credentials, I feel.
In recent years, Morrisons has consistently paid a regular dividend and provided investors with a special payout depending on group profitability. This year, analysts are forecasting a total yield of 5.5% from the enterprise. Considering the defensive nature of the firm’s operations, I reckon this dividend is exceptionally sustainable.
Meanwhile, the yield on Sainsbury’s shares could hit 5.6% next year, based on current projections. Once again, the company’s defensive nature suggests to me that this distribution is sustainable, even in the current economic and political environments.
The bottom line
Often, the best shares to buy are not those with the most exciting outlooks. Companies that can produce steady profits year after year can make the best long-term investments. And it’s for that reason that I think Sainsbury’s and Morrisons could be some of the best UK shares to acquire at this moment in time.
Both companies have proven to investors over the past five years that they can operate calmly in a crisis. What’s more, both stocks offer dividend yields far in excess of the market average, and compared to the current base rate of 0.1%, the yields look incredibly attractive.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.