Down 15%, but the FTSE 100’s J Sainsbury has a dividend yield of over 5%!

It looks like the UK government’s latest budget is having an impact on the FTSE 100‘S J Sainsbury (LSE:SBRY).

In the last month the share price has fallen by around 15% and is now at just under 252p as I write on November 8th.

News outlets have reported that chief executive Simon Roberts has some concerns. He expects the announced changes to employers’ national insurance to increase the company’s tax bill by around £140 million a year.

Additionally, the government has raised the minimum wage for most adults. Roberts told reporters that low profit margins in the supermarket industry were leading to higher prices for customers. In other words, the company’s profits are not sufficient for Sainsbury’s to absorb the cost increases.

For this reason, Roberts believes fiscal moves are likely to boost inflation.

A positive outlook for business

It looks like all the uncertainty has led to a drop in the share price. But this situation could be a good opportunity for investors to pick up some J Sainsbury shares at a better valuation.

All supermarket companies are in the same boat when it comes to cost increases. As a result, consumers are likely to face higher food prices wherever they shop. I expect J Sainsbury to be able to maintain its profit margins in the coming months and years by increasing selling prices.

Meanwhile, the company released its half-year results on November 7th. Roberts said the grocery store has continued to gain market share “strong” Volume growth.

The directors expressed a positive outlook for the company and I don’t think the government’s budget will change that in the long term.

However, City analysts expect normalized profits to fall by around 22% in the current trading year. After that, there should be a recovery of around 16% in 2025.

Meanwhile, dividend estimates are optimistic, with mid-single-digit increases forecast this year and next.

A defensive sector

So, looking forward, the expected return for next year is just over 5.7%. So that’s a decent amount of revenue for shareholders to collect. I think the company has a good chance of maintaining its dividend in the coming years.

However, there are risks for shareholders. The first is the low profit margins in the industry that Roberts talks about. Another reason is the fierce competition in the industry, which requires a lot of effort to extract every little pound of profit.

Still, the food sector has defensive characteristics because people need to buy and eat food regardless of the general economic situation. Additionally, J Sainsbury has a good dividend payment record, showing that the company competes well in the industry.

Since the expected dividend yield is well above 5%, the income can help compensate investors for the risks they take in holding the shares.

For this reason, I believe J Sainsbury is now worth investors’ further research time and consideration.