Kroger stock reported strong earnings and raised its guidance for the coming year earlier today.
At least some of this increase can be attributed to the fact that when people eat out less because of the pandemic, they have to buy more groceries to make up for that meals being made at home.
Is Kroger a Buy Now?
As always, the best way to invest for long-term goals is to create a diversified portfolio tailored to your risk tolerance and goals. Once you’ve gotten those set up and properly funded, you can look at other investment opportunities.
Kroger is a nationwide grocery chain that includes many different brands including King Soopers here in Colorado. As a result, Kroger is not a growth stock, but it also has a large position in an industry that cannot be eliminated. People need food and they have to buy it somewhere. The stock’s price ranged from the low 20s to the mid-40s over the entire previous five year range. That said, the stock trades at a 22 PE ratio, which is high for this kind of company.
As always, I believe in my stocks paying me money why I wait for them to appreciate high enough for me to sell. The dividend on Kroger stock is approximately 1.82%. That’s not the highest around by a long shot, but it’s much more than you can earn in a savings or money market account, with the added bonus of potentially selling for a profit in the future.
What Makes Kroger a Buy or Sell?
Kroger is not special. There are several grocery chains and other retailers like Target, Costco, and even Walmart can give investors exposure to grocery retail. So, the answer to Is Kroger a Good Investment is how does it compare to other grocery-involved retailers.
Safeway is Kroger’s most direct competitor is Albertsons, which includes Safeway and Vons. Albertsons has a 1.24% dividend, so it’s close if you like the stock better.
Costco’s dividend is just 0.68%. If you are going to buy Costco, you are going to do it for different reasons than trying to get the highest dividends in the grocery retail space.
Target is not as focused on grocery. This is both good and bad. It’s good because there is extra diversity. It’s bad because one of the appeals of grocery is its resilience to downturns in consumer spending. Shoppers in a difficult situation are much more likely to cut spending in the non-grocery parts of Target, thereby putting some of Target’s earnings at risk. Since Target currently has a 1.47% dividend, there isn’t any reason to reach here over Albertsons. (Again, there may be other reasons you want to own Target stock, but not because of how it compares to Albertsons in the grocery sector).
Add it all up, and if you need some consumer spending in your portfolio, Kroger makes a strong case for being your choice.
About the Author
By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.
At the time of publication, Mr. Nelson owned shares in following companies. He did not own shares in any companies mentioned above that are not listed below. Mr. Nelson’s investments and stock ownership may change at any time without notice.
The author owned shares in Kroger, Albertsons, Target, and Costco. He did not own shares in any other companies mentioned above.