Sainsbury’s shares: a decent passive income stock to buy? – Yahoo Finance UK

Image source: Getty Images

Supermarket shares like Sainsbury’s (LSE:SBRY) saw monumental declines in 2022 due to the cost-of-living crisis. Nonetheless, the stock is now up 40% from its bottom, and even reported a positive set of Q3 results. With a decent dividend yield of 5%, I could be tempted to buy the stock.

Christmas cheer

Sainsbury’s released its latest Q3 update yesterday. There was an improvement to its underlying sales growth, but it’s important to note that the numbers don’t take the impact of double-digit grocery inflation into account.

Metrics	Q3 2023	Q3 2022
Grocery	5.6%	12.5%
General merchandise	4.6%	-6.9%

Nevertheless, CEO Simon Roberts was still bullish. He upgraded the FTSE 100 firm’s outlook, and now expects profits before tax to hit the upper end of its guidance of £630m to £690m. He even raised the company’s free cash flow guidance to £600m for FY23.

Sainsbury’s results aren’t eye-catching by any means, but this update showed plenty of encouraging signs that the company is beginning to establish a unique position among consumers. In fact, it outperformed many of its largest competitors on many fronts.

Seeing the difference

Its investment of £550m to expand its Aldi price match range, and delay raising prices after the rest of the market, has proven to be beneficial. Consequently, the average selling price for its top 100 products is the lowest in the industry. As a result, customer satisfaction hit an all-time high in Q3.

Hence, it’s no surprise that Sainsbury’s did so well over the Christmas period. Additionally, the board mentioned that it’s seeing less down-trading to other supermarkets. And despite declines in grocery volumes, it still managed to outperform Tesco, Asda, and Morrisons in the quarter.

This shows that its investments are paying off, and the latest Kantar grocery market share data backs this up. Since bottoming in September, Sainsbury’s has staged a strong recovery, taking market share away from the likes of Asda and Morrisons.

^{Data source: Kantar}