Kroger Stock a Buy: Supermarket Success

When you look at the stocks that have shown relative strength even at the weakest points of the year for the stock market, one unexpected name stands out. Kroger Co (NYSE:KR) has handled the pandemic thus far with precision and investors have been pleased with the company’s positive momentum. When you dive deeper into some of the reasons this retail supermarket business has been so strong, you start to understand why this company is perhaps one of the most underrated businesses in the S&P 500.

Kroger stock is worth a look at this time for a variety of different reasons. With more people staying home and cooking, grocery store chains like Kroger have benefitted greatly. Investors are expecting record growth figures when the supermarket chain announces their Q1 earnings this Thursday before market open and adding shares before the report might be a good idea. Believe it or not, Kroger was actually the only stock in the S&P 500 that was green during the massive market selloff in last Thursday’s trading session. This is a testament to the strong sentiment behind Kroger stock. Let’s take a more in-depth look at Kroger’s business model and positive momentum below.

Essentially Pandemic-Proof

When COVID-19 was officially declared a global health crisis, businesses started scrambling to figure out the best way to weather the economic storm. If you are looking for a company that really handled things the right way, look no further than Kroger. The company rolled out special initiatives including bonus pay for workers and special store hours that have made it easier for people to get the groceries they need during the crisis. The company is particularly focused on the health and safety of their employees and customers, and even added a “Thank You Pay” fund of $130 million to provide extended paid COVID-19 Emergency Leave to affected workers.

Most of the major retail businesses are taking a beating during the crisis, but since Kroger provides groceries, which have consistent demand, their sales have not slumped. In fact, it’s very likely that Kroger reports nice earnings this week due to panic buying at the beginning of the pandemic. The company has steadily added jobs since the pandemic began, which shows just how big the need for its products has been. Being labeled an “essential business” helped Kroger in a big way. The truth is that Kroger has handled the pandemic well thus far and should continue seeing strong sales going forward even in a saturated marketplace.

Reliable Dividend Growth

One of the things that investors love to see when they are assessing a company is dividend growth. It depends on the type of company you are buying, but for stocks like Kroger, the fact that they have increased their dividend 5 times on a year-over-year basis over the last 5 years bodes well for investors going forward. This is another big reason why Kroger is a buy at this time.

With revenue rolling in at record rates and a lot of positive momentum in its favor, it’s safe to say that you can expect reliable dividend growth to continue for Kroger. The stock currently offers a 2% dividend yield, but don’t be surprised to see that payout goes up sooner rather than later. Any time a company is able to raise its dividend with such consistency, it signifies that it is a well-run business with steady cash flows.

Minimal Downsides

When it comes to the downsides related to Kroger stock, there aren’t too many reasons to be bearish. One of the big risks has to do with how quickly the economy recovers because when things return to normalcy we can expect more people to head to restaurants and spend money outside of the grocery stores. However, that won’t necessarily hurt Kroger’s sales too much. You also have to keep in mind there are major competitors for the company like Amazon and Walmart, although Kroger is making positive strides with their online ordering logistics.

It’s also fair to say that Kroger’s growth is limited to a certain point. Although market conditions have been great for the company lately, you can’t expect massive growth like you would see in the technology sector if you decide to buy this company. However, the safety you get with Kroger’s business model can also be seen as a positive.

A Safe Buy

Although you can’t really anticipate huge growth with a stock like Kroger, that doesn’t mean it shouldn’t be on your radar. We simply don’t know how long the current recession will last and how long the pandemic will continue, which means that Kroger offers investors relative safety in the market thanks to the consistent demand for their products.

The fact that this company offers positive momentum, reliable dividend growth, and a recession-proof business model means that is a stock that fits well into any portfolio. Keep an eye out for their earnings results this week and look to add Kroger if you are interested in dividend growth stocks with a little bit of potential upside.