Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
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
Kroger (KR) is headquartered in Cincinnati, and is in the Retail-Wholesale sector. The stock has seen a price change of 7% since the start of the year. Currently paying a dividend of $0.16 per share, the company has a dividend yield of 2.06%. In comparison, the Retail - Supermarkets industry's yield is 1.98%, while the S&P 500's yield is 2.23%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.64 is up 6.7% from last year. In the past five-year period, Kroger has increased its dividend 5 times on a year-over-year basis for an average annual increase of 7.71%. 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. Kroger's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for KR for this fiscal year. The Zacks Consensus Estimate for 2020 is $2.40 per share, representing a year-over-year earnings growth rate of 9.09%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide 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 have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that KR is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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The Kroger Co. (KR) : Free Stock Analysis Report
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