Forget the Market’s Hottest Stocks. This Boring Dividend Stock Is Where I’d Put $1,000 Before 2027.
After last week’s sizable stumble, artificial intelligence stocks seem to be stabilizing, perhaps regrouping for a recovery. The AI trade appears to be back on.
Still, I’m not overly interested in adding more exposure to the AI sliver of the market while it’s discounted. Last week’s sell-off shows some vulnerability on this front, and perhaps for most of the overall stock market now that it’s about as expensive as it’s been in many years. We may be moving into a period where a surer thing is the smarter thing, including reliable income.
To this end, while it’s admittedly boring, if I had an extra $1,000 to put to work right now, I’d use it to take on a position in the mundane grocery store chain The Kroger Company (KR +0.87%), plugging into its just-mediocre forward-looking yield of 2.3%. This often-ignored outfit has a very bullish secret.
Image source: Getty Images.
Not your average grocery store chain
You almost certainly know the company, perhaps better than you realize. While most of its nearly 2,800 grocery stores peppered across the United States operate under the Kroger banner, the company is also parent to Fred Meyer, Ralphs, Pick ‘n Save, Marianos, and King Soopers, just to name a few. There’s a good chance you’ve shopped at a Kroger-owned store without even realizing it, contributing to last year’s revenue growth of 2.9% to $147.6 billion, more than $4.9 billion of which was turned into operating profit. That’s not huge growth or a particularly wide profit margin rate, although by grocery store standards, it is.
This company delivers more shareholder value growth than it seems like it should be able to, however. While its top-line growth is usually only in the low single digits, over the course of the past 10 years, Kroger’s dividend has grown by an average of 12.5%, from $0.12 then to $0.39 per share now. That’s enormous dividend growth for any industry.
Granted, stock buybacks helped — a lot. Since 2016, the grocer’s outstanding share count has been dialed back from 959 million to 608 million as of the middle of this year, helping its annual earnings improve from $2.06 per share then to $4.85 per share now.
That’s far from being a misleading metric, though. The Kroger Company earned enough real accessible cash during this stretch to fund these generous stock repurchases and pay its dividends.
This might put things in their proper perspective with this boring dividend stock: Had you made a $10,000 investment in KR stock 10 years ago and reinvested any dividends it dished out along the way, today your position would be worth $26,870, with most of that gain coming from — surprisingly enough — the stock’s price appreciation rather than dividends. Your position would also be generating more than $600 worth of annual dividend income, by the way, to do with whatever you wish.
KR – Kroger
$68.60+$0.59 (+0.87%)
NYSE · As of 4:00 PM ET 11/10/26
Then there’s the simple fact that Kroger sells products that people must purchase over and over again, regardless of their price.
Strategic shift
Obviously, there’s no guarantee that the next 10 years will be as fruitful for Kroger’s shareholders as the past 10 have been. In fact, there’s a reasonably good chance they won’t be. The grocer’s considerably bigger now than it was then, so opportunities for future growth are (relatively) smaller in size and fewer in number. The stock’s price has also nearly doubled during this time, dampening the benefit of its stock buybacks. Be sure to keep any expectations in check.
Still, while past performance is no guarantee of future results, the past is a reasonably good indication of how well a company functions, which points to the plausible future. All the attributes that made KR such a high-performance ticker for the past decade are still in place, and likely to continue growing this stock’s value, even if at a slower pace.
More than anything, though, I’m starting to think the market environment is shifting toward a slower-moving one that’s less charged by AI enthusiasm, making cash-generating names like Kroger all the more valuable. I don’t want to simply shed all of my more aggressive growth holdings here. However, with interest rates already high and still rising, I do think it’s time to prepare for a bit more economic lethargy. That means more reliable — and growing — cash flow, since the returns on other types of investments may be on the verge of weakening.
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Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.