Last update on 2024-06-27

Kroger (KR) - Dividend Analysis (Final Score: 5/8)

Kroger (KR) Dividend Analysis: Scored 5/8 on an 8-criteria system evaluating performance, stability, and sustainability of dividend payments. Find more insights!

Short Analysis - Dividend Score: 5

We're running Kroger (KR) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

This analysis checks how well Kroger (KR) has maintained its dividend stability using an 8-criteria system. With a score of 5 out of 8, Kroger's dividend yield is slightly behind its industry average, but its growth rate over 20 years is strong at 9.49%, well above the U.S. average. Its payout ratio is right at 65%, showing sustainability. Both earnings and cash flow sufficiently cover dividends. While there have been small drops in dividends, Kroger has been paying dividends for over 25 years and has been stable with quick recoveries. Stock repurchases have consistently lowered the total shares, improving EPS.

Insights for Value Investors Seeking Stable Income

Based on this analysis, Kroger (KR) seems like a reasonably stable dividend stock worth considering. Its consistent increase in dividends and sustainable payout ratio are strong positives. The slightly lower dividend yield compared to the industry and a high payout ratio touch the maximum threshold are areas to watch. Since the dividends are well-covered by both earnings and cash flow, and with a strong history of stock repurchases, it's a viable choice for income-focused investors.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is the ratio of a company's annual dividend compared to its share price. It's crucial for income-focused investors as it assesses the income-generating ability of the investment.

Kroger's current dividend yield of 2.4065% is slightly lower than the industry average of 2.56%. This indicates that Kroger is underperforming in terms of yielding dividends compared to its peers. Historically, up until 2015, Kroger's yield outpaced the industry average, but in recent years, it managed to stay above the 2% threshold. However, in 2023, it still fell short of the industry average. While Kroger's dividend yield has seen fluctuations, generally rebounding to higher percentages, the recent lag suggests a need for the company to enhance its dividend policy to stay competitive in yielding income for investors.

Average annual Growth Rate higher than 5% in the last 20 years?

Explain the criterion for Kroger (KR) and why it is important to consider

The average dividend growth rate over the last 20 years is 9.49%, which implies that Kroger has consistently increased its dividends. A higher dividend growth rate can be a positive indicator for investors looking for income and signals financial stability and management's confidence in future earnings. The U.S. average annual dividend growth rate tends to be around 5% historically. Therefore, Kroger at nearly 9.5% more than outpaces the average, portraying a good trend. It’s noteworthy to highlight that between 2007-2008 there's a drop and again in 2014-2016 there's negative growth, but overall, the positive growth trend resumed which stabilizes the dividend payouts positively.

Average annual Payout Ratio lower than 65% in the last 20 years?

Payout ratio measures the percentage of earnings distributed as dividends to shareholders. Ensuring it is lower than 65% indicates dividend sustainability and retained earnings for reinvestment and growth.

The average payout ratio for Kroger (KR) over the last 20 years is approximately 64.86%, hovering right at the 65% threshold. This suggests that the company has generally maintained a sustainable dividend payout, closer to the preferred maximum limit. The significantly high payout ratio of 724.91% in 2010 is an outlier, largely due to decreased earnings. Discounting such outliers, the trend appears healthy and indicates good financial management, balancing dividend payments and retained earnings. However, investors should monitor this ratio continuously, especially if fluctuations occur.

Dividends Well Covered by Earnings?

Dividends are well covered by the earnings.

The ratio of Earnings Per Share (EPS) to Dividend Per Share (DPS) gives an indication of how well a company's earnings can cover its dividend payments. Ideally, a company should have an EPS that is several times higher than its DPS to demonstrate strong earnings potential and dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividend covered by free cash flow indicates the percentage of free cash flow that is being paid out as dividends. A lower percentage generally indicates a safer dividend, as the company is retaining more cash for other purposes. It's important because it demonstrates if the company generates enough cash to cover its dividend payouts.

Examining Kroger's free cash flow against dividend payout from 2007 to 2023 shows a fluctuating but generally well-covered pattern. For instance, in 2023, the free cash flow was $1.42 billion, and dividends paid were $682 million, resulting in a coverage ratio of approximately 48%. Such a ratio suggests that Kroger's dividends are well-covered by its free cash flow, implying that the company is not over-extending itself and retains sufficient cash to invest in other areas like growth or debt reduction. This suggests a positive trend towards financial health and sustainability.

Stable Dividends Since the Company Began Paying Dividends?

Explain the importance of stable dividends over the past 20 years and why it matters to income-seeking investors.

Kroger has consistently grown its dividend payments for nearly two decades, despite minor fluctuations. In 2015 and 2016, dividends dipped by more than 20%, likely due to external market conditions. However, a strong rebound followed, pushing the dividends up to $1.1 in 2023. This trend generally signifies financial robustness. Stability with sharp recoveries is a positive indicator for income investors, as it reflects the company's commitment to rewarding shareholders even amidst volatility.

Dividends Paid for Over 25 Years?

Why is paying dividends for over 25 years important for a company?

Paying dividends for over 25 years is often seen as a hallmark of a company's financial health and commitment to returning value to shareholders. It showcases the company's ability to generate consistent profits, maintain robust cash flows, and have a shareholder-friendly capital allocation policy. Long-term dividend payments also hint at management's confidence in the company's future earnings capacity.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases over the past two decades is an indicator of a company's ability to manage its treasury shares effectively. It reflects financial health and strategic capital allocation.

Kroger (KR) has shown a consistent trend of repurchasing shares over the last 20 years, reducing its shares outstanding from 1.582 billion in 2003 to 718 million in 2023. The average repurchase rate per year is -3.84%, indicating a disciplined approach to capital allocation. This reduction in the number of shares enhances shareholder value by increasing earnings per share (EPS) and often signals confidence in the company’s financial strength. Given the systematic buybacks annually, it can be deduced that Kroger has maintained a strong financial standing and a shareholder-friendly capital return policy during this period. This trend is favorable for investors who value long-term returns.