Date: Thursday 14 Jun 2012
The market was spooked by yesterday's trading update from supermarket group Sainsbury, but Questor thinks the market is wrong. Performance at its convenience store operations was solid, although there is some slowing of the out-performance relative to its superstores. However, they remain a good driver of growth. Sainsbury has also gained market share in general merchandise and clothing, as non-food sales continue to grow faster than groceries. John Rogers, Sainsbury's finance director, confirmed to Questor yesterday that he expected dividend cover would start to rise in the future as capital expenditure was reduced. Mr Rogers plans to increase the dividend cover to about twice, while still raising the payment. This is important, as it implies the chunky yield, which is higher than utilities such as Severn Trent, is secure. The shares are likely to be supported by the yield and Sainsbury is definitely a share to own for those seeking income, The Telegraph says.
New investors have a week to buy shares in Severn Trent before they trade without the right to a 63p-a-share special dividend. But is it worth it? The shares trade without the right to this payment from June 20. The cash return was announced alongside the company's results two weeks ago. Severn shares offer a yield of 4.2pc rising to 4.5pc next year. The special payment is also an attractive proposition, although the shares are likely to slide next Wednesday when the shares trade without the right to the one-off dividend. It will be interesting to see if the fall is more than 63p a share. Severn shares appear richly priced and the company's exposure to non-regulated businesses in Southern Europe clouds the issue. So, on balance, Questor maintains a hold rating, Questor says.
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