Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.
Cash flow can come from bond interest, interest from other types of investments, and of course, 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
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 4.99%. The supermarket chain is currently shelling out a dividend of $0.26 per share, with a dividend yield of 2.19%. This compares to the Retail - Supermarkets industry's yield of 1.63% and the S&P 500's yield of 1.56%.
Taking a look at the company's dividend growth, its current annualized dividend of $1.04 is up 33.3% from last year. Over the last 5 years, Kroger has increased its dividend 5 times on a year-over-year basis for an average annual increase of 13.15%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Kroger's current payout ratio is 21%. This means it paid out 21% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, KR expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $3.91 per share, with earnings expected to increase 6.25% from the year ago period.
Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. 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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The Kroger Co. (KR) : Free Stock Analysis Report
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