NYSE:KR) stock is about to trade ex-dividend in four days. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 1st of September.” data-reactid=”28″>The Kroger Co. (NYSE:KR) stock is about to trade ex-dividend in four days. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 1st of September.
Kroger’s next dividend payment will be US$0.18 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Based on the last year’s worth of payments, Kroger stock has a trailing yield of around 2.0% on the current share price of $35.24. If you buy this business for its dividend, you should have an idea of whether Kroger’s dividend is reliable and sustainable. As a result, readers should always check whether Kroger has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Kroger ” data-reactid=”30″>Check out our latest analysis for Kroger
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kroger paid out just 25% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 13% of its free cash flow in the last year.
It’s positive to see that Kroger’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we’re encouraged by the steady growth at Kroger, with earnings per share up 8.4% on average over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Kroger has lifted its dividend by approximately 15% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Kroger worth buying for its dividend? Earnings per share growth has been growing somewhat, and Kroger is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Kroger is halfway there. There’s a lot to like about Kroger, and we would prioritise taking a closer look at it.
