Another Strong Year In Store At J Sainsbury plc

It's been another solid year for JSainsbury (LSE: SBRY) (NASDAQOTH: JSAIY.US). If annual in share price growth of 8% sounds less than spectacular, it compares nicely to Wm. Morrison's 3% drop and the 5% slide at Tesco (LSE:TSCO) (NASDAQOTH: TSCDY.US). No question who is winning the price match wars here. Sainsbury's also yields 4.4%, giving investors a total return of more than 12% in 2013. So what's in store for 2014?

Investors in Sainsbury's really can taste the difference, with a 9.1% rise in profits before tax to £433 million in Q3. Revenues, excluding VAT on fuel, grew 4.3% to £12.6 billion. Tesco and Morrisons, by comparison, saw their sales drop. I was particularly pleased to see Sainsbury's 15% rise in online grocery sales, a key growth market and future battleground. It has more than 180,000 orders a week and turnover tops £1 billion. Sainsbury's also been opening or expanding stores, with six supermarkets, 50 convenience stores and two extensions, although I remain unconvinced that a renewed supermarket space race will offer stellar returns for investors.

Invest well for less

Sainsbury's continues to outpace the rest of the big four, according to latest research from Kantar Worldpanel. Its sales rose 1.8% year-on-year, while the others saw their sales fall. With 16.8% market share, Sainsbury's now looks short odds to overtake Asda (16.9%) to become the UK's second-biggest supermarket. Tesco is still way out in front, despite its troubles, with a (shrinking) 29.9% of sales. Morrisons has 11.6%.

But Sainsbury's faces tough competition from upstarts Aldi and Lidl, who continue to post double-digit growth and broaden their shopper base. More than half of all UK shoppers visited at least one of their stores in the 12 weeks to 8 December. Aldi now has 4% market share and Lidl 3.1%. My biggest worry is that they will continue to make large inroads in 2014 and beyond.

Sainsbury's continues to outperform its major rivals, although I'm keen to see whether the 'Building a Better Tesco' campaign will back lost ground. Forecast earnings per share growth of 9% to December 2014 and 7% to 2015 look far tastier than Tesco's, which are forecast to drop 6% to February 2014 and grow a meagre 3% to February 2015.

Sainsbury's is currently trading relatively cheaply at 12.3 times earnings, as the squeeze on consumers knocks investor faith in the retail sector. Citigroup has it as a buy, however, with a target price of 470p, comfortably above today's 365p. That gives plenty of scope for future share price growth.

Sainsbury's is on a meaty forecast yield of 4.7%, but there are plenty more top dividend stocks on the FTSE 100. At Motley Fool, we know the power of a dividend. To find out more, download our brand new report How to Create Dividends for Life. It's completely free, so click here now.

Harvey own shares in Tesco. The Motley Fool owns shares in Tesco and has recommended Wm. Morrison.