With this in mind, I’m going to outline three of my favourite FTSE 100 dividend stocks that all yield more than 5% and I believe you can buy and hold forever.

Unforeseen risks

My first pick is RSA Insurance (LSE: RSA). The insurance company tends to fly below most income investors’ radar, but I believe the stock deserves a position in your portfolio. 

Over the past six years, RSA’s dividend has grown at a compound annual rate of 16%. During the same time frame, earnings per share have grown at a compound annual rate of 22.3%.

City analysts expect this trend to continue. They’ve pencilled in earnings growth of 25% for 2019, followed by growth of 19% for 2020. The dividend is expected to grow by 20% and 19%, respectively, in these years.

One of the reasons why I like RSA as an income investment is that the company provides an essential service. For most people, property insurance is a crucial expenditure, and the market is only growing.

With this being the case, I think RSA should be able to continue to grow in line with the market for many years to come and distribute a healthy amount of its income to investors along the way.

Defensive income

My second buy-and-hold-forever income play is Sainsbury’s (LSE: SBRY). While shares in this supermarket giant have come under pressure recently, due to concerns the group is struggling for direction, I think long-term prospects for this company are bright.

Food and household supplies are necessities and, as one of the largest retailers in the country, Sainsbury’s will always have a captive audience.

Still, as noted above, the group’s growth is something to worry about. Analysts think earnings per share will decline by 16% in 2019, due to rising costs and falling sales. However, the company’s dividend is covered 1.9 x earnings per share, which suggests the distribution is safe for the time being.

With a dividend yield of 5.2% at the time of writing, investors will be paid to wait for the company’s turnaround to take hold. On top of this, the stock is currently trading at an attractive multiple of just 10.1 times forward earnings, around 30% below the industry average.

Booming market

My final income pick is DS Smith (LSE: SMDS). Over the past six years, this packaging producer has built itself into one of the largest in Europe, through a combination of sensible acquisitions and organic growth.

During this time, net profit has grown at a compound annual rate of 14%, and revenue has increased at an annual rate of 9%. Shareholders have been exceptionally well rewarded since 2014 as well. The dividend has grown at a compound annual rate of 12%. 

As long as DS keeps doing what it has been doing successfully for the past six years, I think the stock will continue to produce impressive returns for shareholders for the foreseeable future.

Today, you can own a stake in this company for just 10 times forward earnings. City analysts are predicting earnings growth of 26% for its current financial year. The shares currently support a dividend yield of 4.7%.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended DS Smith. 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.

Indeed, City analysts expect the company’s earnings per share will fall 15% this year. On the other hand, analysts have pencilled in earnings growth of 5% and 25% for Sainsbury’s largest peers, Tesco and Morrisons, respectively. 

Falling sales

It looks as if the company is closing in on analysts’ dismal expectations for the year. Sainsbury’s like-for-like sales for 16 weeks to the end of June were down 1.6%, excluding fuel, which tells me the business is struggling to compete in the current retail environment. And now that the group’s merger with Asda has been scrapped, it’s difficult to see what the future holds for this retailer.

Management needs to pull something out of the hat to return the business to growth and draw customers back into Sainsbury’s store. Until there’s some progress on this front, I’m not tempted by the firm’s low valuation and a 1.5% dividend yield. 

A better buy

In my opinion, a better retail sector buy is the convenience store operator McColl’s Retail (LSE: MCLS).  Even though it has its own problems, McColl’s has a plan. For the past two years, the group’s operations have been disrupted by supply chain issues, which caused profits to drop 50% in 2018.

While analysts expect a further decline of 15% in earnings per share for 2019, as the business continues to invest in growth, costs are coming down and sales are going up. McColl’s interim numbers for the 26-week period ending 26 May show a 1% increase in like-for-like sales and a decline in adjusted administrative expenses as a percentage of revenue of 0.3% to 25.2%. Adjusted EBITDA and profit before tax came in at £13m and £0.2m, respectively.

As part of its plan to rekindle growth, McColl’s management is working closely with Morrisons to offer customers a broader range of products at a lower price. The group is also trialling a “Morrisons Daily” format at 10 stores.

A more significant range and lower prices aren’t management’s only growth initiatives. The business is also rapidly reshaping its store estate. Some 41 underperforming stores and newsagents and smaller convenience stores were divested during the first half of this year while three new convenience stores were opened.

Growth returns

All of these efforts should, the City believes, help the company return to growth in 2020. With this being the case, I think the stock is a steal today trading at just nine times forward earnings. This makes McColls the cheapest the stock in the UK food and drug retailing industry. On top of this appealing valuation, McColl’s supports a dividend yield of 5.8%, so you’ll be paid to wait for earnings to recover.

So overall, if you’re looking for an undervalued retailer to add to your portfolio, I highly recommend taking a closer look at McColl’s. As the company’s growth initiatives begin to yield results over the next few years, the shares could rise substantially from current levels.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended McColl's Retail and Tesco. 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.

Unfortunately, the company’s performance over the past five and 10 years hasn’t been any better. The stock has underperformed the FTSE 100 by around 10% per annum over the past five years and 9% over the past decade, even after including dividends.

In fact, with a performance of just 0.8% per annum for the past 10 years, investors would have been better off putting their money in a cash savings account rather than buying the Sainsbury’s share price. And I don’t think the company’s performance is going to improve anytime soon as analysts reckon the firm’s earnings per share will slump 15% this year as consumers turn their backs on the business.

With this being the case, I would dump the Sainsbury’s share price today and use the money to buy Morrisons (LSE: MRW) instead.

The best of the best

Meanwhile, the best performing retailer in the FTSE 100 over the past 12 months is Ocado (LSE: OCDO). Shares in this pioneering company have risen 17.3% and, last year, the stock was also the best performer in the whole FTSE 100.

Shares in Ocado have surged as the business has inked several transformative agreements with third parties for its fulfilment technology, which will allow retailers to improve the efficiency of their online operations significantly, according to the company.

The most important of these deals is the £750m tie-up with Marks & Spencer, announced at the beginning of this year. Ocado will help M&S to develop an online delivery service with its highly sought-after technology.

It’s clear that Ocado has something other retailers want. But the problem is the company is not expected to generate a profit from its operations for some time.

Analysts believe it will lose around £100m during the next two years on sales of around £4bn. With this being the case, even though I think the enterprise does have a bright future, I can’t bring myself to recommend a business that’s losing so much money.

Instead, I think it might be worth investing in Morrisons. You see, the supermarket giant already has an agreement with Ocado under a partnership which dates back to 2013. But the company also has distribution agreements with online giant Amazon.com. To top it off, Morrisons is profitable.

In my opinion, this gives investors the best of both worlds. Not only does the company have an agreement with the largest online retailer in the Western world, but it also has access to Ocado’s technology — technology M&S has just paid nearly £1bn to work with.

An attractive price

At the time of writing, shares in Morrisons also look appropriately priced. City analysts believe the company will earn around 13.9p per share in 2019, up around 25% year-on-year, on a net income of £332m.

On this basis, the stock is trading at a forward P/E of 14.8. Analysts have also pencilled in a per-share dividend payout of 9.6p, giving a dividend yield of 4.6% at current prices. The company has a history of returning any excess profit to investors via dividends, so I expect this distribution to grow steadily in the years ahead.

That’s why I’d dump the Sainsbury’s share price and buy FTSE 100 growth stock Morrisons instead.

The post I’d dump the Sainsbury’s share price for this FTSE 100 growth champion appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.

What’s even more shocking is the fact that shares in Sainsbury’s have underperformed those of Tesco, its larger peer, by around 34% over the same timeframe excluding dividends (Tesco has outperformed the FTSE 100 by 5% excluding dividends).

The question I want to answer today is whether or not this trend is set to continue or if the Sainsbury’s share price can make a comeback this year?

Growth slowdown

Three years ago, it would have been inconceivable to imagine that the Tesco share price would ever outperform that of Sainsbury’s by more than 30% over the space of just 12 months.

But a lot has changed since 2016. Tesco has undergone a remarkable transformation, while Sainsbury’s has floundered. The group’s CEO, Mike Coupe had staked everything on the firm’s merger with Asda, believing that this was the solution to all of the company’s problems.

Unfortunately, while management chased this deal, competitors have continued to chip away at the company’s market share and sales.

According to Sainsbury’s latest trading statement, for the 15 weeks to 5 January 2019, total retail sales declined 0.4% excluding fuel, and like-for-like sales fell 1.1%. One day after the company released this downbeat statement, Tesco revealed sales growth of 2.2% on a like-for-like basis for the 19 weeks to 5 January 2019.

No plan

Now that the Competition and Markets Authority has rejected the deal with Asda, it is challenging to try and predict what the future holds for Sainsbury’s.

As noted above, it has put all of its time and resources into trying to complete what it believed would have been a transformative deal. Now it has been blocked from completing the process, management is back to square one, and it doesn’t look as if it has a plan to return the company to growth.

That being said, the City has pencilled in earnings growth of 11.6% for 2019, which puts the stock on a forward P/E of 10.9. That looks cheap compared to Tesco’s P/E of 14.1, although I should point out that Sainsbury’s sales are falling while Tesco’s are still growing, which deserves a lower rating in my opinion.

Time will tell

Sainsbury’s is planning to release its annual numbers tomorrow, and the company should publish its plans to return to growth at the same time.

A lot hinges on these results. The company needs to convince investors that it has a plan to return to growth, and if it fails to do this, then I think the shares could fall further in the near term.

A dividend yield of 4.7% does provide some support for the shares, but ultimately the company’s outlook depends on its ability to rekindle sales rises. It could be some time before these return so I think it is probably worth avoiding the business for the time being.

The post Will the Sainsbury’s share price ever recover? appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Tesco. 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.

I continue to hold this opinion. The company’s outlook hasn’t improved over the past few weeks, and it now looks very likely that Sainsbury’s proposed takeover of peer ASDA, will not get the green light from regulators without substantial changes.

Blocked deal? 

Earlier this month, the Competition and Markets Authority extended its investigation into the deal citing the “scope and complexity” of the investigation. The authority needs more time to digest and analyse the issues raised by competitors, as well as with the two key companies. 

If the deal isn’t approved, it’s difficult to see what the future holds for Sainsbury’s. It’s more than likely the company will continue to chug along at its current pace, which implies another year or more of lacklustre growth. At the same time, its domestic competitors, notably Tesco at Morrisons, are roaring ahead, grabbing market share from floundering Sainsbury’s. 

With such an uncertain outlook, I don’t think it’s worth paying the current price of 13.8 times forward earnings for the retailer’s shares.

Slow and steady income 

Sainsbury’s is not for me, but one company I’m interested in is Safestore Holdings (LSE: SAFE). 

Safestore’s growth is exploding thanks to the UK’s insatiable demand for storing stuff. The company can’t build properties fast enough. It has 119 wholly-owned stores across the UK and 27 in Paris. On top of this, the group has three new sites in the UK under development and two new locations in the French capital, which are on schedule to open in 2019 and 2020.

Customers are filling up these storage facilities almost as fast as the group can build them. According to Safestore’s first quarter trading update for the three months to the end of January, the company increased its maximum lettable area by 1.6% year-on-year, and its closing occupancy rose 2.2% to 72.2%. 

These numbers indicate customers are opening new accounts with the group at a faster rate than it can build out new storage facilities. 

On a like-for-like basis, occupancy rose 3.2% to 37.5%, and the average storage rate increased by 2.4% to £26.44. Overall, like-for-like revenue expanded 6.4% year-on-year during the first fiscal quarter of its 2019 financial year. 

More of the same

With over two decades of operating history behind it, I’m confident that Safestore is pursuing the right growth strategy and, as the group continue to expand, shareholders should be well rewarded. 

The company has already increased its dividend by 160% over the past six years and analysts are expecting further growth of 13% for 2019, which gives a dividend yield of 3%. 

Another attractive quality about this business is earnings should be relatively immune to any economic disruption that comes as a result of Brexit. The company could even see an increase in demand for its services if things get really bad, because homeowners who have to sell their homes, and shop owners who are forced out of business, might need somewhere to store their possessions while the economy recovers. 

Considering all of the above, I think Safestore is an excellent income stock to include in your portfolio today.

The post Forget the Sainsbury’s share price, I’d buy this FTSE 250 income stock appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Tesco. 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.

These numbers are particularly embarrassing for the company because peers, notably Tesco and Morrisons, reported sales growth across the festive period. Tesco, which published its numbers today, unveiled like-for-like sales growth of 2.2% in UK stores compared to last year.

Struggling for growth 

Considering the above, it looks to me as if Sainsbury’s is struggling to attract enough consumers into its stores. It is difficult to tell exactly why some customers are shunning the brand. Indeed, Sainsbury’s is not alone. The broader retail sector has been reporting difficult operating conditions for some months, but it is notable that the company is struggling while peers push ahead.

Clearly, Sainsbury’s has lost its way, and some consumers are losing confidence in the brand. The group’s planned merger with Asda may offer some relief regarding cost reductions, as my Foolish colleague Peter Stephens recently pointed out, but there is still only a 50/50 chance the merger will actually go ahead.

With Sainsbury’s facing an uncertain future, I think selling the stock could be the right course of action for investors today. If you are looking for somewhere to reinvest your funds, I reckon Card Factory (LSE: CARD) could be an exciting opportunity. 

Outperforming 

In the rough seas of the UK retail environment, Card Factory stands out as a company that has what it takes to weather the hostile environment. 

The UK’s leading specialist retailer of greeting cards, dressings and gifts today reported sales growth of 3.4% for the 11 months to the end of December 2018. On a like-for-like basis, sales declined by 0.1%. 

What I’m really interested in, however, is the growth at the firm’s online business. The update notes cardfactory.co.uk delivered revenue growth of 59.1% for the 11 months to the end of December 2018, following an increase of 65.8% in the same period last year. Granted, this is still a relatively small part of the overall business. Management estimates the group has around 1% of the £100m online personalised card market, implying total sales of just £1m compared to overall revenue of £400m+. But it is expected to start turning a profit this year. Any further sales growth should go straight to the bottom line.

With sales rising by more than 50% per annum, this online division will be a considerable driver of profits in the years ahead. Thanks to growth from the online business, as well as the contribution from new stores to overall sales, management expects to hit its profitability targets for the current financial year. 

The City is expecting earnings per share of 17.4p and a dividend of 13p, implying a forward P/E of 11.2 and dividend yield of 6.7%. Based on today’s trading update, I see no reason why the company cannot meet these targets. 

Overall, Card Factory’s growth looks to be hotting up, and this retailer appears to me to be a much better investment than Sainsbury’s.

The post I would dump the Sainsbury’s share price and buy this unstoppable retailer instead appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of Card Factory. The Motley Fool UK has recommended Tesco. 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.

At the other end of the spectrum is retailer J Sainsbury (LSE: SBRY), which has seen its shares rise 33% so far in 2018. 

These two businesses couldn’t be more different, and the performance gap between the two is surprising. Old-fashioned, bricks and mortar Sainsbury’s has outperformed Just Eat, which is at the cutting edge of the technological revolution, by nearly 50% this year.

However, I believe the Sainsbury’s time in the sun is now coming to an end and it could be time for investors to reinvest their profits from this business into underperforming Just Eat.

Switch positions

The reason why I think Just Eat is a better buy today is simple: valuation.

Investors have rushed to buy shares in Sainsbury’s as the company’s recovery has gained traction over the past 12 months. Management’s decision to try and merge the business with ASDA to create a UK retail behemoth has also helped improve sentiment. But the company’s underlying growth has not kept up with investor optimism. Analysts have pencilled in an earnings per share (EPS) expansion of 13% for 2019, which leaves the stock trading at a forward P/E of 15.1.

As my Foolish colleague Alan Oscroft recently noted, the UK supermarket sector is changing rapidly. Discounters Aldi and Lidl only have relatively small market shares and continue to expand fast, while larger players, such as Tesco are investing hundreds of millions of pounds to lure shoppers back into their stores.

Sainsbury’s has proven over the past few years that it can compete, but a valuation of 15 times forward earnings does not leave much room for disappointment. If earnings growth stalls, the shares could quickly erase all of this year’s gains.

A price worth paying 

Just Eat is also trading at a premium valuation (35 times forward earnings), but in my view, the firm deserves a higher rating. EPS are projected to expand 141% this year and 22% in 2019, giving a PEG ratio of 0.9 (anything below one indicates growth at a reasonable price). Meanwhile, the company is expanding overseas.

The cost of opening new offices around the world, as well as increasing investment here in the UK to improve its customer offering, has hurt investor sentiment. I believe the market is overreacting. While earnings may take a hit in the near term, the investment should pay for itself over the long term. 

Time to buy 

With this being the case, I believe recent weakness could present an excellent opportunity for long-term investors to buy into the Just Eat growth story.

Looking past short-term volatility, I believe the company’s strong position in the UK takeaway market is worth paying a premium for. And, unlike Sainsbury’s, Just Eat’s income is not at risk from low-cost German disruptors.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Just Eat. 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.

Still, while pre-tax profit for the period fell, other operating metrics showed significant growth. Order volumes for the period grew by 15.6% to an average of 260,000 orders per week and the number of active customers increased 12.7% year-on-year.

Deteriorating balance sheet 

However, the one area where figures did deteriorate was the company’s balance sheet. Ocado ended the period with cash and equivalents of £37.8m, compared to £52.7m a year ago, while net debt rose to £210.5m from £136.2m. 

And net debt will rise further in the months ahead. For the full year, the company has guided towards capital expenditure of £175m, most of which will be funded by a £250m bond issue and approval of £100m revolving credit facility shortly after the end of the reported period. Even though this additional debt will be used to fund growth, it is fair to say that such a hefty slug of new borrowing is worrying considering Ocado’s outlook. Indeed, City analysts have only forecast a pre-tax profit of £11m for the fiscal year ending 30 November, rising to £15.3m for fiscal 2018 on revenue of £1.65bn. Based on these projections, analysts have pencilled-in earnings per share of 2.1p for fiscal 2018, giving a forward P/E of 311. 

Considering Ocado’s ballooning debt and tight profit margins, this valuation looks rich and doesn’t leave much room for manoeuvre if the company does not meet City growth expectations. For those reasons, I would avoid the company.

Mixed update 

Following yesterday’s mixed trading update, I would also avoid J Sainsbury (LSE: SBRY). Even though the company announced in its trading statement for the 16 weeks to 1 July that sales rose by 2.3% excluding fuel, City analysts are expecting this growth to come at the expense of profit. 

For the fiscal year ending 31 March 2018, analysts have pencilled-in earnings per share of 19.2p, down 6% year-on-year and down significantly from the 2014 high of 32.8p. Based on these figures, shares in the retailer are trading at a forward P/E ratio of 13.2, a relatively fair multiple considering the group’s steady growth. The shares also support a dividend yield of 4%, and the payout is covered twice by earnings per share. 

Yesterday’s numbers show that Sainsbury’s is no longer struggling, but at the same time, opportunities for growth are limited, and with this being the case I would avoid the shares for the time being. There are better opportunities out there.

The post Why I’d dump these expensive retailers appeared first on The Twelfth Magpie.

More reading

• Here are 2 FTSE shares I’m excited about this July — and 1 I’m avoiding
• Can anything save the Ocado share price?
• How much is needed in a Stocks and Shares ISA to aim to retire on £12,548 a year?

Rupert Hargreaves has no position in any 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.