Why The Kroger Co. (KR) Can Still Grow Your Greenbacks: Safeway Inc. (SWY), Wal-Mart Stores, Inc. (WMT)

Page 2 of 2

Balance Sheet and Dividend

Kroger does have a significant amount of debt versus its cash, but that is common for retailers. As of its latest quarter, Kroger had $1.2 billion in cash and $6.18 billion in total long term debt. They pay out a dividend of 15 cents a share (1.95% yield), which is 3 cents higher than the 12 cent dividend they paid out a year earlier. The payout ratio on that dividend us 17.81%, which gives Kroger’s management ample room to boost the dividend further.

Going forward I expect Kroger to continue to increase its dividend by 3 cents a share within the next year. If you are a long term investor Kroger is a great stock to own because it pays out a steady dividend, can easily manage to pay the dividend, and will continuously increase that dividend for decades to come. Back in 2006 The Kroger Co. (NYSE:KR) paid out a dividend of 6.5 cents a share each quarter. In 2007 that increased to 7.5 cents, went up to 9 cents in 2008, went up even further to 9.5 cents in 2009 (keep in mind that the US economy was in a freefall and everyone thought the next depression was coming), and was at 10.5 cents in 2010. Even during times of economic peril, Kroger continued to serve investor’s best interests and boost its payout. That is a very bullish sign for a good company.

Final Thoughts

Even after Kroger’s run, the stock still looks like a buy. It continues to outperform, trades at cheaper ratios than the industry, has a promising future in the pharmacy business, continues to boost its dividend, and would be a great long term buy for any portfolio. Any company that has enough faith in its business to boost its dividend while the global economy goes through a massive recession is worth looking into. I think that Kroger will beat expectations going forward, just as it has done in the past. One thing to look out for is the payroll tax increase, but the bullish jobs data should mitigate that risk. Also, stronger than expected retail data for February should help. I’m still bullish on Kroger.

The article Why This Grocer Can Still Grow Your Greenbacks originally appeared on Fool.com and is written by Callum Turcan.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2