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Kroger Boosts Shareholder Returns through Dividends and Buybacks

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After shining in 2015, Kroger stock sees slow gains in 2016

Kroger’s (KR) investors were rewarded in 2015 by the company’s strong growth track as the it outperformed the S&P 500 Index, as well as most of its supermarket and mass merchandising peers. While Kroger gained more than 30% by the end of 2015, Whole Foods Market (WFM), The Fresh Market (TFM), and Walmart (WMT) lost 43%, 23%, and 28%. respectively.

However, 2016 has not been a great year. Kroger’s stock price has come down 6% YTD (year-to-date) and it is currently trading 9.5% below its 52-week high price,[1. as of February 24, 2016] somewhat in line with the overall S&P 500 Index, which is down 4.1% YTD. However, Kroger’s fundamentals continue to be strong, and there is no reason for the stock to bounce back once again. Kroger constitutes 1.2% of the SPDR S&P Retail ETF (XRT) and 2.3% of the SPDR Consumer Staples Select Sector ETF (XLP).

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A look at dividends and buybacks at Kroger

While Kroger’s (KR) investors have enjoyed high returns in the stock market, the company has boosted total shareholder returns by paying healthy dividends and repurchasing shares. Through 12 months ended October 2015, Kroger returned $1.1 billion to shareholders through share buybacks and dividends. During the third quarter of 2016, the company returned $31 million to its shareholders through share repurchases.

The company has delivered double-digit growth in dividends over the last five years. Its dividends grew by a CAGR (compounded annual growth rate) of 23% between fiscal 2011–2016. Kroger recently announced a quarterly dividend of 10.5 cents per share, in line with the previous quarters. This represents a $0.42 annualized dividend for the current fiscal year.

Kroger’s one-year forward dividend yield is hovering around 1.15%, while its current dividend payout ratio stands at 20%. In comparison, many of its supermarket peers such as The Fresh Market (TFM), Sprouts Farmers Market (SFM), and Supervalu (SVU) do not offer dividends.

While the company has enhanced its earnings multiple by reducing its share count, the growth in its bottom line has been the major contributor to its EPS (earnings per share) growth. To learn more about the company’s past financial performance, please read the next part of this series.

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