Safeway Inc. (SWY): 1 Great Dividend You Can Buy Right Now

Page 1 of 2

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn’t sustainable. In others, the dividend is so low, it’s not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Safeway Inc. (NYSE:SWY)Today, and one day each week for the rest of the year, we’re going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn’t to say that these stocks don’t share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week’s selection.

This week, I went shopping for great a growing dividend and found it in Safeway Inc. (NYSE:SWY)‘s aisles.

No cleanup needed
Grocery stores are far from being an exciting business model — but sometimes the more boring and necessary a business, the more consistent the cash flow and dividend growth will be! Thus is the case with Safeway, which reported stunningly positive fourth-quarter results yesterday that sent the stock through the roof.

For the quarter, Safeway noted a 13% increase in net income as same-store sales (excluding fuel) rose 0.8% and its razor-thin operating margin jumped 39 basis points. The way I see it, there are four major reasons that Safeway is now excelling.

Safeway’s outperformance explained
First, Safeway’s loyalty rewards programs and fuel stations are emphasizing the fact that it understands its customer better and that it’s finally “getting with the times.” Safeway’s management noted that usage of mobile apps as well as digital couponing has been up considerably more than anticipated. At the moment, about 45% of its sales are derived from customers who are part of its loyalty rewards program, called “Just for U,” with the company targeting a level of 65%. By conceding to small coupons up front, Safeway is able to keep consumers in its stores longer, causing them, oddly enough, to purchase more.

Also, like The Kroger Co. (NYSE:KR), Safeway made it a point to install fueling stations next to its stores as way of rewarding loyal customers and making the shopping experience more convenient. Both Kroger and Safeway have seen demonstrable positives since installing fuel stations within the past few years.

Second, Safeway’s gift-card subsidiary, Blackhawk Network Holdings, has been an absolute monster in the prepaid market. With NetSpend Holdings Inc (NASDAQ:NTSP) having been purchased earlier this week for a hefty premium, it’s very likely that the value of Blackhawk, which has as good a retail presence, if not the best, among gift cards, is going to head higher. Safeway is planning to spin off Blackhawk sometime in the first half of this year.

Third, food costs and foul-ups are finally working in its favor. Historically high food costs brought about by a record drought in 2012 have given way to more moderate food costs while missteps by some of Safeway’s peers have allowed it to attract new customers. SUPERVALU INC. (NYSE:SVU), for instance, recently agreed to sell multiple chains to a consortium led by Cerberus Group for $3.3 billion. The deal, which was spurred by SUPERVALU’s unsustainably high debt levels, could necessitate the closure of underperforming stores and give Safeway a chance to pick up share in those markets.

Even Wal-Mart Stores, Inc. (NYSE:WMT), which historically undercuts everyone else on price in order to draw consumers, is struggling. Wal-Mart, which generates more than half of its revenue from grocery sales, cautioned just yesterday that delayed tax refunds and higher payroll taxes are eating into its customer base and offered investors a tepid forecast. Safeway hasn’t had nearly these same issues, with its loyalty rewards drawing more traffic into its stores.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!