Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Kroger in Focus
Headquartered in Cincinnati, Kroger (KR) is a Retail-Wholesale stock that has seen a price change of -6.65% so far this year. Currently paying a dividend of $0.14 per share, the company has a dividend yield of 2.18%. In comparison, the Retail - Supermarkets industry's yield is 2.23%, while the S&P 500's yield is 1.89%.
Taking a look at the company's dividend growth, its current annualized dividend of $0.56 is up 5.7% 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 10.71%. 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 27%. This means it paid out 27% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for KR for this fiscal year. The Zacks Consensus Estimate for 2019 is $2.23 per share, which represents a year-over-year growth rate of 5.69%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. 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. 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).
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The Kroger Co. (KR): Free Stock Analysis Report
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