Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. 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
Based in Cincinnati, Kroger (KR) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of 4.46%. The supermarket chain is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 2.2% compared to the Retail - Supermarkets industry's yield of 1.6% and the S&P 500's yield of 1.72%.
Looking at dividend growth, the company's current annualized dividend of $1.04 is up 33.3% from last year. Kroger has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 13.15%. 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. Right now, Kroger's payout ratio is 21%, which 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 $4.04 per share, which represents a year-over-year growth rate of 9.78%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide 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. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, KR presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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The Kroger Co. (KR): Free Stock Analysis Report
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