LONDON -- One company that has particularly caught my eye is Sainsbury's (LSE:SBRY). It is going on my watchlist along with Unilever, and I will be following both with a potential eye to investing.
The ubiquitous supermarket chain has over 1,000 stores in the U.K., with just under half being convenience stores, or Sainsbury's Locals. The business is also growing grocery sales online to keep pace with the changing demands of increasingly hooked-up consumers. In addition to the traditional retail heritage, Sainsbury's Bank is operated in conjunction with Lloyds Banking Group, and Sainsbury's Property holds over 300 properties. So it's quite a varied portfolio, which also includes the energy and entertainment markets for good measure.
From a pure turnover perspective, annual sales have increased by 6% every year since 2008 to 22 billion pounds in 2012, with a 4% increase revealed in the interim results in November 2012. It's a great steady trend, and converts into an average growth in annual profits of 16% over the same period. The share price has remained relatively static during this period, which has the effect of reducing the price-to-earnings ratio consistently down each year from 17 in 2008 to the current 11 times earnings. Today's price of 330 pence is coming into the realms of serious consideration.
Move over, Asda
Sainsbury's has increased its market share to almost 17%, the highest in a nearly a decade and hot on the heels of Asda for the No. 2 spot. The Brand Match coupons seem to have been well received, and the company has managed to cultivate a socially responsible image by being at the forefront of Fairtrade products and free range eggs, as well as reducing the carbon footprint of their stores. Chief executive Justin King has also been successful in promoting the company through media appearances.
It's not all plain sailing, though. Asda are still ahead on market share for now, and the bargain stores of Aldi and Lidl have taken a bite while shoppers are tightening their belts. What Sainsbury's has done for investors is raise its dividend every year since a major correction in 2005 by an average of 11%. The yield has impressively risen from 3.6% to 5.3% most recently. This trend seems set to continue, with the most recent full year dividend of 16 pence per share covered 1.75 times.
So this company excites me as it seems to be harnessing the still fledgling online grocery marketplace admirably, and is well positioned to take advantage of both the current tightened purse strings and an improved economy in the years to come.
It's not the only share worth looking at, though. If you are looking for an income share, it's worth taking a look at one of our latest hugely popular and absolutely free reports for a potential 5.7% yield.
On the other hand, if you want to focus on topping Sainsbury's growth, then you could do worse than considering this also completely free report.
Outrageously successful investor Warren Buffett is well invested in the grocery retail market, too. See which company he put his name behind here.
Barry does not own shares in any of the companies mentioned. The Motley Fool has recommended shares in Unilever. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.