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Why Kroger (KR) is a Great Dividend Stock Right Now

Zacks Equity Research

All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Kroger in Focus

Based in Cincinnati, Kroger (KR) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of -6.25%. The supermarket chain is paying out a dividend of $0.14 per share at the moment, with a dividend yield of 2.17% compared to the Retail - Supermarkets industry's yield of 2.4% and the S&P 500's yield of 1.86%.

In terms of dividend growth, the company's current annualized dividend of $0.56 is up 5.7% from last year. Kroger has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 10.71%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Kroger's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for KR for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.22 per share, with earnings expected to increase 5.21% from the year ago period.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, KR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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