A FTSE 100 dividend stock I wouldn't touch with a bargepole


Despite broker belief that J Sainsbury(LSE: SBRY) should continue to offer above-average dividend yields, I remain far from convinced about the grocery giant.

The ongoing fragmentation of the UK supermarket space has seen the London business endure three earnings dips on the bounce. And another fall is forecast for the year to March, a 13% drop currently being estimated.

Fresh downgrades to this year's forecast in recent weeks lead me to doubt current hopes that Sainsbury's will finally fight back with rises of 11% and 6% in fiscal 2019 and 2020 respectively too. And latest industry data from Nielsen is far from encouraging. It showed more erosion of Sainsbury's market share, to 15.5% in the three months to December 30 from 15.8% a year earlier.

In this environment the grocer is expected to cut the dividend yet again, to 9.8p per share from 10.2p last year. This yields a chunky 3.8%, but given the prospect of additional dividend cuts down the line, neither this -- nor the low forward P/E ratio of 12.2 times -- is enough to tempt me for one to buy shares in the business.

Get down with N Brown

Instead of stashing their cash in Sainsbury's, I reckon yield hunters would be better served by checking out N Brown Group (LSE: BWNG) today.

The Jacamo SimplyBe and JD Williams owner is not immune either to the increasing strain on shoppers' purses, even if its focus on the value end of the market may help it to sail through the worst of the storm. This was underlined by fellow cut-price peer Bonmarche's latest trading statement this month in which it advised of a 5.5% sales slump in the 13 weeks to December 30.

However, I am confident that N Brown's niche -- namely the plus-size -- segment should continue to protect it from heavy revenues pressure in the immediate term. Indeed, the FTSE 250 business advised this month that, despite challenging conditions at the present time, revenues advanced 3.2% during the 18 weeks to January 6, while sales jumped 7.3% across its so-called Power Brands.

City analysts certainly do not expect troubles on the high street to prove a barrier to N Brown's eagerly-awaited flip into the black as it throws off the financial shackles of massive restructuring in recent years. Sure, in the year to February 2018 a 3% profits decline is forecast. But rises of 5% and 4% are being predicted for fiscal 2019 and 2020.

And this anticipated return to growth is expected to finally get its progressive dividend policy up and running again. The predicted 14.23p per share reward for this year is predicted to rise to 14.3p in the upcoming period, and again to 14.8p in 2020.

And as a consequence, yields smash those at Sainsbury's, clocking in at 6.8% through to the end of next year and 7.1% for 2020.

N Brown can be picked up for next to nothing, the retailer boasting a forward P/E ratio of just 9.5 times. But unlike the FTSE 100 supermarket, thanks to its niche product offerings and terrific progress in the e-commerce segment, I think it is a bargain worth picking up today.

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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.