All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. But 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Kroger in Focus
Kroger (KR) is headquartered in Cincinnati, and is in the Retail-Wholesale sector. The stock has seen a price change of 2.84% since the start of the year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 2.03%. In comparison, the Retail - Supermarkets industry's yield is 2.1%, while the S&P 500's yield is 2%.
Looking at dividend growth, the company's current annualized dividend of $0.56 is up 14.3% from last year. In the past five-year period, Kroger has increased its dividend 4 times on a year-over-year basis for an average annual increase of 12.49%. 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 23%, meaning it paid out 23% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for KR for this fiscal year. The Zacks Consensus Estimate for 2018 is $2.12 per share, with earnings expected to increase 3.92% 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.
For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. Income investors have to be mindful 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).