In a move to enhance shareholders' return,
The Kroger Company
(
KR
) - one of the largest grocery retailers - recently increased its
quarterly dividend by about 30% bringing the annualized payout to
60 cents per share from the earlier level of 46 cents.
The quarterly dividend, after the hike, will come to 15 cents
per share, up from the prior payment of 11.5 cents per share. The
increased quarterly dividend will be payable on December 1, 2012,
to shareholders of record as on November 15, 2012.
This is the sixth consecutive annual increase in Kroger's
quarterly dividend since it reinstated dividend payment in the year
2006 at the rate of 6.5 cents per share. Its prior dividend
increase was made on September 15, 2011, when the company had
increased its quarterly dividend by 9.5% to 11.5 cents per share
compared with its previous payout of 10 cents per share.
In May, 2012, its close peer -
Costco Wholesale Corporation
(
COST
) - also increased the quarterly dividend by 14.6% to 27.5 cents
per share from the earlier level of 24 cents.
Kroger's dividend increase reflects its focus on cash
deployment. Besides paying a competitive dividend, the company's
deployment strategy includes stock buybacks. In the second quarter
of 2012, the company repurchased 23.7 million shares of its common
stock for approximately $525 million.
Management believes that Kroger has the capability of generating
healthy free cash flow and operating results. Moreover, the
company's move to increase dividend signifies its focus on
'Customer 1
st
Strategy' proving better returns to the stakeholders.
Overall, Kroger is actively managing its capital resources
through returning much of its free cash to shareholders via share
buybacks and dividends. Moreover, management continues to deploy
capital to concentrate more on remodels, merchandising.
On September 7 2012, the company reported better-than-expected
second-quarter 2012 results. Quarterly earnings of 51 cents per
share increased 24.4% compared with 41 cents per share in the
second-quarter of 2011. Kroger results also exceeded the Zacks
Consensus Estimate by a couple of cents. Total revenue (including
fuel center sales) also climbed 3.9% to $21,726.4 million from the
prior-year quarter, but fell short of the Zacks Consensus Estimate
of $21,983 million.
However, we believe that these positives will be offset by
recent economic downturn and heavy job losses, which have
transformed the way consumers used to shop. Cash-strapped consumers
are now prioritizing their purchases, trading down to cheaper
substitute brands and shopping for groceries at low-price leaders
like
Wal-Mart Stores Inc.
(
WMT
) and
Costco Wholesale Corporation
.
The company presently retains a short-term Zacks #2 Rank (Buy)
for the next 1-3 months on the basis of company's healthy
second-quarter results and continued dividend increases. However,
we retain our long-term 'Neutral' recommendation on the stock.
COSTCO WHOLE CP (COST): Free Stock Analysis
Report
KROGER CO (KR): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis
Report
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