Sainsbury’s – Is it about to get decimated?!

I discussed and analysed Sainsbury’s recently, as the mighty retailer Tesco had announced a profit warning which affected the price in Sainsbury’s as well as other companies in the retail sector. As I mentioned previously, I buy shares once per month on a discount scheme, so I bought more Sainsbury’s shares at the end of last month (SBRY on the LSE); taking my shareholding from 52 to 95 shares.

I actually briefly worked for Sainsbury’s, but alas I got a scholarship so I left to study abroad. Otherwise, I would have participated in their sharesave scheme and saved the maximum amount. They were a great company to work for and they are a decent supermarket to shop at. The company is a great dividend payer too, with several years’ worth of increasing payments.These are some of the main reasons I like Sainsbury’s.

But right now, things are looking a bit scary, as profit warnings in the sector have really mangled it for Sainsbury’s of late… that is until today, when the price rose a whopping 5.65%!!!

This follows on from yesterday’s ‘bloodbath’, losing the company more than 3%. People around the message boards and forums on trading sites are saying that tomorrow’s update has already been priced in, so people have piled on to buy more shares at a good discount.

Unfortunately, I did not have any spare money to take advantage of yesterday’s fall, however we do not know what is about to happen tomorrow, as the profit results will be updated, and we are expecting bad news to affect the share price again.

HOWEVER! This is not necessarily a bad thing, as we can have the opportunity to pick up shares at a discount to today’s price. The problem is really about what we think of the grocery retail market and whether it is worth buying more shares in the first place or not.

I personally really like Sainsbury’s. Their food is better quality and the price of branded products is basically the same as everywhere else. Their own food is, in my opinion, far superior to Tesco’s or Asda’s offerings and the shopping experience in my local store is better… If you go after shares in companies that you like, trust, or admire, then this is who I would choose from the sector.

BUT WHAT IF… there’s a dividend cut come tomorrow? Well, some people who do DGI (dividend growth investing) would use that as an excuse to sell. However, I would not be so quick to sell, as the current dividend stands at well over 6% and if cut, it is likely to bring it down to 4%+, which is still massively higher than the FTSE 100 average dividend of just over 3%.

So, all in all, I think I will just sit there happily with my Sainsbury’s shares and not worry about them too much.