One FTSE 100 4% yielder I'd buy today, and one I'd sell

I have long warned of the perils and pitfalls facing the country's established supermarkets like J Sainsbury(LSE: SBRY).

The advent of the global recession of almost a decade ago was a game-changer for these chains. Pressured by the need to stretch their grocery budgets longer than ever before, shoppers flocked into the arms of deep discounters such as Aldi and Lidl to feed their hungry families. Surprised by the quality and exceptional prices on offer, they stuck around too.

And despite years and years of trying to win them back, from introducing massive price cuts of their own, to revamping their customer service, the so-called Big Six operators, like Sainsbury's, have failed to tempt the public to flood back through their doors.

Indeed, report after report from industry researcher Kantar Worldpanel serves as a regular reminder of the difficulties facing these businesses. In its November release, it advised that while sales at Sainsbury's rose 2.6% during the 12 weeks to 5 November, this performance was put firmly in the shade by both Lidl and Aldi, where sales advanced 15.1% and 13.1%, respectively, in the period.

As a consequence, Lidl saw its share rise 0.5% to 5.1%, while Aldi's climbed 0.6% to 6.7%. Sainsbury's, by comparison, saw a 10 basis points fall to 16.2%.

Profits pounded

But rising revenues pressure is only one part of the puzzle Sainsbury's has to solve, of course, as the retailer also battles against rising price inflation. There's only so much of this it can absorb rather than passing the full extent of the problem onto its customers, and this is likely to drive even more of its shoppers elsewhere.

Against this backcloth, the City is expecting earnings to drop 8% in the year to March 2018, which would mark the fourth successive decline, if realised. And with cost inflation continuing and pressure on household budgets also worsening, I reckon predictions of a 12% bottom-line bounceback in fiscal 2019 are looking a tad optimistic.

Some may remain pretty upbeat about Sainsbury's dividend prospects on account of its giant yields (a predicted 9.8p per share reward yields a solid 4.2%). However, this would also reflect the fourth year of reductions, and as further profits reverses cannot be ruled out, I'm not convinced that further cuts won't happen.

I reckon investors should give little thought to the supermarket's low forward P/E ratio of 12.5 times and give it a wide berth.

A sunnier selection

Another FTSE 100 company boasting yields in excess of 4% is TUI Travel (LSE: TUI). But unlike Sainsbury's, I would be very happy to invest my hard-earned cash here.

The holiday operator continues to witness strong demand for its package deals across the globe, and with economic conditions rapidly improving in mainland Europe, I am confident demand for its getaways should keep on stomping higher.

Indeed, City brokers are anticipating TUI to follow a 29% earnings explosion in the year to September 2017 with a 9% advance in the current year.

And this is expected to translate into further dividend growth, too. Last year's predicted 63.1 euro cent per share dividend is expected to rise to 68.7 cents in fiscal 2018, a figure which creates a mountainous 4.4% yield.

In my opinion, the travel ace is a hot stock for both growth and income chasers, and is a snip on a prospective P/E rating of 13 times.

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Royston Wild has no position in any of the 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.

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