Ever since they first showed up in the mid-nineteenth century, Supermarkets have gained a lot of popularity and have subsequently evolved from small grocery stores to large shopping centres. Today, supermarkets are a ubiquitous part of everyday life all over the world. Investing in supermarkets, especially the big ones can be a very lucrative endeavour for an investor. However, not all supermarkets are open to the public for investments. Some are privately owned and therefore not listed on the stock exchanges making their stocks virtually inaccessible to the common investor.
A good example of a supermarket that many investors wish they could sink their teeth into but just can’t is Lidl. Founded in the 1930s by the Schwartz family, Lidl is a very successful privately owned global discount supermarket chain based in Neckarsulm, Baden-Württemberg, Germany. It is owned and operated by Schwarz Gruppe, a holding company that also owns Kaufland- a hypermarket and the store chains Handelshof. Currently, Lidl boosts of over 10,000 stores across Europe.
Although investors cannot have a share of the pie that is Lidl, all hope is not lost. There are still other supermarkets out there that are public companies and worth investing in. Good examples of such supermarkets include Sainsbury’s and Asda.
Alternatives to Lidl: Sainsbury’s and Asda
Investing in Sainsbury’s
What is Sainsbury’s?
In the United Kingdom, Sainsbury’s is the second largest chain of supermarkets having a 16.9% supermarket share. John James Sainsbury started it in 1869 and it had a shop in Druly Lane, London. The company in 1922 became the largest grocery retailer, it was among the earliest to adopt self-service retailing and its heyday was during the 1980s. Sainsbury was overtaken in 1995 by Tesco as the market’s leader while it dropped down to third place with Asda in the second place for most of the period that was subsequent up to 2014 when it again became second. J Sainsbury plc., the holding company is divided into three divisions, Sainsbury’s Convenience Stores, Sainsbury’s bank and Sainsbury’s Supermarkets Ltd. The group’s head office is situated in Sainsbury’s Store Support Centre in Holborn Circus in London. Other interests by the group are in property.
Lord Sainsbury of Turville is Sainsbury family’s largest shareholders having 4.99%, with the trustee of a number of Sainsbury settlements and charitable trusts Judith Portrait holding 3.92%. The Qatar Investment Authority, the sovereign wealth fund of Qatar is the largest shareholder overall and they hold 25.999% of the company. It’s listed on the London Stock Exchange and is a FTSE 100 Index constituent.
Should you invest in Sainsbury’s?
The latest results show a continuous positive streak by Sainsbury’s SBRY, but has the share price been driven up too high by this success or is it time to buy?
A majority of people prefer investing in companies that do well, but this just but half the story. The price that a person pays is as of importance as the company that they invest in, so there is sense not only looking at what Sainsbury is doing but what you also get from each of its shares at the current price.
Sainsbury’s dividend safety
The sort of company that Sainsbury’s is, is one of interest to dividend investors. So it’s best to begin by looking at the dividend.
The current yield is at 4.4% with shares at 381p and the current dividend at 16.7p. This is a long way clear of the available 3.4% or so from the FTSE 100 index tracker. Even though an improvement of 1% in income may not seem to be much, it’s really more than 29% better – in comparative terms – than income you would get from the large cap index.
In terms of safety of the dividend, the current earnings cover the dividend by around 1.8 times, which is about the Sainsbury’s average.
An issue with the dividend is that the dividend payments for over the past decade haven’t been fairly covered by the free cash flows. This may be an indication that little spare cash is available as a safety buffer.
Another issue is that the dividend in 2005 was cut by more than half which implies that the supermarket’s dividend is less predictable than expected, given the defensive industry that it operates in.
The yield is to say the least attractive, but many questions may arise on its safety in times coming (although to be honest, questions always arise on future dividend safety from any company).
The ability to grow income overtime is what separates equities from bonds. Although it’s good having a dividend yield of 4.4% from an investment, it’s even better having that dividend grow annually as well.
As expected from a supermarket, Sainsbury is quite stable as a business and much as it had some problems in the last decade, generally it has had the capability of growing in line with inflation.
The last decade revenues by Sainsbury’s were able to be rise by 5% annually, the earnings by about 16% annually and dividends by about 11% in a year.
Investing in Asda
What is Asda?
Asda stores limited is a supermarket retailer that is British founded but American owned having its headquarters in Leeds, West Yorkshire. The company in July 1999 following a £6.7 billion takeover become subsidiary of Wal-Mart and by market share in Britain, it now is the second largest supermarket chain there.
The company also offers various other products in addition to its supermarket retail format that is core, the products include a mobile phone company and a number of financial services. The marketing promotions for Asda are usually solely based on price and it promotes itself using the slogan “Save Money. Live Better” just like Wal-Mart which is its parent company.
Should you invest in Asda
For this supermarket that is Wal-Mart owned, no such light exists at the end of the tunnel. Back in August Andy Clarke- the president and CEO of ASDA Stores, Ltd. may have declared Asda’s “nadir” but it still continues to struggle amidst tough competition. The margin seems to overtly have protection from the management over sales which is a an interesting strategy for a super group that is value based and which worriedly has to be said in terms of sustainability.