Forget the Sainsbury’s share price, I’d buy this FTSE 250 income stock
I continue to hold this opinion. The companys outlook hasnt improved over the past few weeks, and it now looks very likely that Sainsburys proposed takeover of peer ASDA, will not get the green light from regulators without substantial changes.
Earlier this month, the Competition and Markets Authority extended its investigation into the deal citing the scope and complexity of the investigation. The authority needs more time to digest and analyse the issues raised by competitors, as well as with the two key companies.
If the deal isnt approved, its difficult to see what the future holds for Sainsburys. Its more than likely the company will continue to chug along at its current pace, which implies another year or more of lacklustre growth. At the same time, its domestic competitors, notably Tesco at Morrisons, are roaring ahead, grabbing market share from floundering Sainsburys.
With such an uncertain outlook, I dont think its worth paying the current price of 13.8 times forward earnings for the retailers shares.
Slow and steady income
Sainsburys is not for me, but one company Im interested in is Safestore Holdings (LSE: SAFE).
Safestores growth is exploding thanks to the UKs insatiable demand for storing stuff. The company cant build properties fast enough. It has 119 wholly-owned stores across the UK and 27 in Paris. On top of this, the group has three new sites in the UK under development and two new locations in the French capital, which are on schedule to open in 2019 and 2020.
Customers are filling up these storage facilities almost as fast as the group can build them. According to Safestores first quarter trading update for the three months to the end of January, the company increased its maximum lettable area by 1.6% year-on-year, and its closing occupancy rose 2.2% to 72.2%.
These numbers indicate customers are opening new accounts with the group at a faster rate than it can build out new storage facilities.
On a like-for-like basis, occupancy rose 3.2% to 37.5%, and the average storage rate increased by 2.4% to 26.44. Overall, like-for-like revenue expanded 6.4% year-on-year during the first fiscal quarter of its 2019 financial year.
More of the same
With over two decades of operating history behind it, Im confident that Safestore is pursuing the right growth strategy and, as the group continue to expand, shareholders should be well rewarded.
The company has already increased its dividend by 160% over the past six years and analysts are expecting further growth of 13% for 2019, which gives a dividend yield of 3%.
Another attractive quality about this business is earnings should be relatively immune to any economic disruption that comes as a result of Brexit. The company could even see an increase in demand for its services if things get really bad, because homeowners who have to sell their homes, and shop owners who are forced out of business, might need somewhere to store their possessions while the economy recovers.
Considering all of the above, I think Safestore is an excellent income stock to include in your portfolio today.