Behind Kroger’s Stock Returns ahead of the Fiscal 1Q18 Results

Kroger’s (KR) battle with persistent deflation and rising competition has impacted its stock market performance. After losing 17% in 2016, the company’s stock has fallen 12.5% YTD (year-to-date).

By comparison, organic and natural food players Whole Foods Market (WFM) and Sprouts Farmers Market (SFM) have managed to stay positive, having gained 15.2% and 27.4%, respectively, YTD. But while Sprouts’ has managed to keep its sales comps and margins intact, the same cannot be said about Wal-Mart Stores (WMT).

Mass merchandisers Walmart and Costco Wholesale (COST) are both among the gainers so far this year, having risen 14.2% and 17.9%, respectively, YTD. Supermarket competitor Supervalu (SVU) and big-box retailer Target (TGT) have fallen 17.6% and 24.4%, respectively, YTD.

Kroger restored its dividends in fiscal 2006 and has paid dividends regularly since then. In fact, it has grown its DPS (dividend per share) by 13% over the past ten years, and the company has a long-term target of growing its dividend at an 11% rate.

In fiscal 2017, the company paid $1.8 million in share buybacks and $429 million in dividends to investors.

The company has a dividend payout of 23%, which means that dividends are consuming more than 20% of its earnings. By comparison, Whole Foods, Target, and Walmart have payouts of 44%, 50%, and 45%, respectively.

Kroger stock offers a dividend yield of 1.1%, which is lower than Walmart’s 2.4% and Target’s 4.6% but in line with Costco’s 1.2% and Whole Foods’ 1.4%.

Notably, investors looking for exposure to Kroger through ETFs can explore the First Trust Consumer Staples AlphaDEX Fund (FXG). KR makes up 0.8% of FXG.