Finally, Safeway is carrying a better variety of natural and organic foods that puts it in better competition with industry margin leader Whole Foods Market, Inc. (NASDAQ:WFM). Whole Foods has made its living on offering locally grown organic and natural foods and isn’t shy about pricing its products at a premium to Safeway, Kroger, and other supermarket chains. What Whole Foods found, and what Safeway now realizes, is that consumers will regularly pay a premium for foods that are perceived to be healthier for them — even if the economy turns south. With Safeway now offering a plentiful selection of organic and natural products, its sales should be expected to continue to rise.
Don’t forget these factors!
Beyond these key components that keep Safeway growing, the company offers two other tangible benefits that shareholders should enjoy. First, Safeway is an aggressive repurchaser of its own shares. Based on its fourth-quarter report filed yesterday, Safeway repurchased a whopping 84.3 million in the trailing-12-month period, or 26% of its outstanding shares. This helps boost the value of each remaining share by dramatically boosting profit per share and making Safeway appear notably cheaper than this time last year.
The other factor, and why we’re really discussing Safeway today, is its incredible dividend. Safeway only began paying a dividend in 2005, but has raised its dividend in each year since then by a cumulative 250%.
Source: Nasdaq.com.
As you can see, Safeway is no stranger to double-digit dividend increases. In fact, all dividend boosts, save for its very first dividend hike in 2006, have been between 20% and 21%. Yet in spite of this rapid growth, Safeway’s payout ratio is only 34% of its projected 2013 forecasted earnings according to Wall Street’s estimates. This leaves ample room for further dividend increases without digging too deeply into its budget for business and product expansion. If Safeway were to again boost its payout by 20% in the upcoming year, shareholders could expect to receive $0.21 per quarter and the yield would jump to 3.7%.
Foolish roundup
Let this be a lesson that just because a business doesn’t appear exciting doesn’t mean it’s not incredibly profitable. Safeway’s technological advancements, its shift toward carrying more natural and organic foods, and its aggressive shareholder-building action such as its share repurchases and rapidly growing dividend payout make it an incredibly attractive long-term investment for income seekers. With its 3% yield, you’ll be hard-pressed to find a more stable income producer.
The article 1 Great Dividend You Can Buy Right Now originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of SUPERVALU and Whole Foods Market. Motley Fool newsletter services have recommended buying shares of Whole Foods Market.
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