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As the FTSE 100 Index continues to climb at the start of the year, I’ve turned my mind to potential high dividend stocks.
UK grocery giant J Sainsbury (LSE: SBRY) is one I’ve got my eye on. I think the company is worth a closer look given its strong recent trading and tasty dividend.
With supermarket margins squeezed and competition fierce, the Sainsbury’s story is one I’d like to unpack a little further to see if it’s one for income investors to consider in 2026.
What’s happening at Sainsbury’s?
The company remains the UK’s second-largest supermarket chain and a long-standing Footsie member. Its share price has climbed 18.9% in the last 12 months to 313p as I write on 9 January, after hitting a 52-week high in November.
Today’s announcement of a bumper Christmas trading period will be music to investors’ ears. The company grew its grocery market share for the sixth consecutive year in its best Christmas period on record.
In the 16 weeks to 3 January 2026, grocery sales rose 5.4% due to customer switching, larger basket sizes, and standout fresh food sales. That included a 20% year-on-year increase in British turkey sales as customers invested in their festive feasts.
That’s good news for investors hoping for continued strong trading and a sustainable dividend from a company that has consistently rewarded shareholders.
Strong cash flow and payout history
The most recent annual dividend payment was around 15.1p per share, translating into a forward dividend yield of 4.9% based on the 313p share price as I write. Given the Bank of England base rate now sits at 3.75% — the lowest level since late 2023 — that sort of payout could be attractive to investors.
The company recently upgraded its guidance and expects to deliver more than £550m in retail free cash flow for the year ending March 2026. That bodes well for dividend cover, which is sitting at a healthy 1.7 times.
Another plus is that the groceries sector isn’t as vulnerable to changes in the state of the economy as others like mining or energy. The company also has a history of delivering special dividends and share buybacks after selling non-core assets in some further shareholder-friendly behaviour.
What are the risks?
Groceries is a low margin business, and intense price competition, particularly from discount rivals like Aldi and Lidl, can put pressure on profitability.
That margin pressure could limit the company’s ability to grow payouts over time. Supermarkets often see earnings fluctuate with input costs like energy and transport, and there is no guarantee that dividend increases will keep pace with inflation or market expectations.
Income is also just one part of the picture within the Footsie. While it’s great to receive steady income, other more growth-focused stocks could provide better overall returns in the long run.
My verdict
The company’s position in the UK grocery market and its steady payout history make it a notable FTSE 100 dividend stock.
A strong forward yield and history of returning capital through special payouts are also positives for income investors. However, despite a strong Christmas period, the company is still operating in a sector with competitive pricing and tight margins, which could limit dividend payout increases.
I do think the stock has a place in a well-diversified portfolio over a long-term horizon and I think it’s worth considering for investors hunting for income in 2026.
