Kroger (KR) – A Super Grocer and a Super Dividend Growth stock

This dividend growth stock is making big headlines, by buying a major grocery store chain in the United States, setting themselves up to be a Super Grocery Giant.

Kroger (KR) is aiming to be the leader in the grocery service space, taking on the likes of Walmart, Costco, Target and even Amazon!  I love their dividend history – but am reviewing to see how the outlook appears and if Kroger appears to be a stock to buy right now!  Let’s dive in!

Kroger (KR)

Kroger is based in Cincinnati, Ohio and they are one of the largest retail / grocery stores in The United States, with over 2,700+ stores.

In addition, they are projected to earn close to $150 billion in revenue for the year of 2022.  As we will discuss in the next section below, they also have the potential to surpass over $200 billion in revenue for the year of 2023!  Talk about dropping money stacks!

Last quarter, they earned over $34 billion in revenue, growing almost 10% versus the prior year linked quarter.  Year to date, they are also up by a similar amount.

Operating cash flows dropped by $1.4 billion, seems like the primary suspect is from an increase in Inventory purchases.  In addition, additional costs were spent due to the significant rise in costs, such as fuel, which had a heavy impact on earnings.  In fact, when Kroger adjusts EBITDA for 2022 vs 2021, they show a growth of 10%!

The stock market has been on fire the last 5 years, over 56% return, as you see below.  One thing to keep in mind, though, is they are down the last 52 weeks and are lagging the stock market in 2023, as the stock is barely showing a net positive thus far.

Kroger has a potential major event coming up…

Big events

Kroger (KR), back in Q4-2022, announced a massive merger deal.  Albertson’s and Kroger agreed on a $25 billion merger deal, for Kroger to swallow up Albertson’s.  This will create one of the single largest grocery stores in the world, with almost 5,000 stores and projected revenue of OVER $200 BILLION!!

There will be a plethora of cost synergies – think information systems, competitive pricing and possibly grocery store closures, as well, for where there is overlap.

Kroger really wants to take on the big guns of Walmart (WMT) and Target (TGT), to say the least.  This massive acquisition solidifies their commitment to stay in the game and to take on the big guys in their competitive circle.

Now, there is a little hold up with the Department of Justice on the review of the merger deal.  The major hold up is the divestiture of stores, which there is a possible spin-off to another entity looming, if there is no buyer for a certain # of stores.  This should really keep things interesting with this deal, for sure.

It’s time to look at Kroger’s dividend stock metrics, though, baby!

Kroger dividend stock metrics

Kroger, you are going through the Dividend Diplomat Stock Screener!  Here, we focus on 3 main dividend stock metrics:

1.) Price to Earnings Ratio (P/E): We look for the price to earnings ratio < the S&P 500 and the competition.

2.) Dividend Payout Ratio: The preferred dividend payout ratio is < 60%.  In fact, we believe the perfect payout ratio is between 40% and 60%.

3.) Dividend Growth Rate: Given we are dividend investing on our way to financial freedom, as we believe dividend income is the best source of passive income, we look at the 5 year dividend growth rate.  In addition, we review how many years the company has increased their dividend.

1.) P/E Ratio: Earnings for 2023 are anticipated to be $4.14 for Kroger.  By the calculation, Kroger trades at 11x earnings, which is fairly undervalued, given the S&P 500 is now trending in the 21+ range.

2.) Dividend Payout Ratio: Paying a quarterly dividend of $0.26 per share, per quarter, that’s a solid $1.04 per year.  Based on the earnings for Kroger, KR has a very low dividend payout ratio of 25%.  Therefore, Kroger retains 75% of earnings for growth and investment opportunities, like the acquisition of Albertson’s. 

3.) Dividend Growth Rate: 16 years, almost reaching dividend aristocrat status.  Kroger has been able to increase double digits on average for quite some time.  Look at the dividend growth chart below:

Lastly, we’ll take a look at the dividend yield.  As an investor, you want to know how much owning this dividend stock pays you now!  The yield for Kroger is at 2.32%.  Not super high, but the combination of Kroger’s dividend yield with their growth rate, make this dividend yield better.

is Kroger Stock a Stock to buy now?

Now that we’ve gone through the metrics, is Kroger a stock to buy for the dividend stock portfolio?

Truthfully and selfishly, I would really like Kroger’s stock price to be closer to $40 than to $45, which is where they are at.  I am keeping this stock HIGH on the watch list and may be looking to buy this stock in 2023.

If you head over to our YouTube channel, you’ll find other undervalued dividend growth stocks that are higher on my list for stocks to buy now!

How about you?  Do you own Kroger stock?  Are you finding it hard to find an undervalued stock, as the stock market has been showing green in 2023?  Share your comments and feedback below!

As always, thanks for stopping by, good luck and happy investing!


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