The S&P 500 just hit a new 52-week high. And many stocks within the index are now trading at extreme valuations. This is good for existing shareholders. But it makes it tough to justify buying into new positions when they’re overpriced.
Which is why today’s article looks at a cheap, inflation-beating dividend stock that Warren Buffett owns.
We’re talking about Kroger ($KR).
I’ve reviewed this company before. But, I want to revisit this stock because it has traded flat all year.
Today’s article examines what Kroger does and why it’s still cheap.
Kroger Fundamentals And Business
Kroger is the largest supermarket chain in America. They operate 2,721 stores across 35 different states. And, they provide food to 60 million U.S. households.
You may even shop at a Kroger store without knowing it.
That’s because Kroger operates numerous grocery brands such as Ralphs, Mariano’s, Fred Meyer, and Pick ‘n Save.
Kroger is also in the process of acquiring Albertsons. A strategic move that will give the company additional grocery store brands like Safeway, Jewel-Osco, and Market Street.
But more on that in a moment…
While Kroger is a retailer, it’s very different from other retailers, like Walmart.
Especially when it comes to stock price and shareholder returns.
Walmart stock trades at a high valuation, and offers low dividend growth.
Kroger, trades at a price to earnings ratio of just 9.83. Less than half the valuation of Walmart or the S&P 500.
On top of this, Kroger has a safe dividend payout ratio of 24.94% and a 5-year compound annual dividend growth rate of 15.72% — more than enough to outpace inflation.
This is a cheap stock with double-digit dividend growth. No wonder Warren Buffett’s Berkshire Hathaway has a 7% stake in the company!
Lastly, Kroger stock typically keeps pace with the general market.
The company has traded flat this year. But, it has still managed to deliver a…