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Shopping for a Grocery Stock? Kroger's on Special

NEW YORK ( F.A.S.T. Graphs) -- Cincinnati-based Kroger (KR - Get Report) is one of the world's largest retailers,  employing over 340,000 associates in over 2,400 supermarkets and multi-department stores in 31 states. While most should be familiar with the Kroger name, the company also operates under two dozen local banners including Dillon's, Fred Meyer, QFC, Ralph's and Smith's.

For those looking for a charitable company in which to partner with this holiday season, one need not look much further than Kroger. Forbes recognized Kroger as being the "most generous company in America" due to its support of hunger relief, breast cancer awareness, the military and more than 30,000 schools and grassroots organizations. Kroger contributes food and funds that are equal to 200 million meals each year. Additionally, while some companies give more on an absolute basis, Kroger gives away substantially more on a percentage basis -- over 9% of its pretax profits.

It is true these generous donations could be doled out to shareholders instead, but Kroger has proven its ability to mix consistent shareholder rewards with a true passion for the community. Kroger initiated a dividend in 2006 and since then has not only paid but also increased this payout for eight consecutive years -- averaging a 19% per annum increase. Despite this robust dividend growth, Kroger is still only paying out about a fifth of its earnings in the form of a dividend.

On the share repurchase front it seems Kroger has the same zeal towards reducing share count as it does toward increasing dividends. At the beginning of 2000, Kroger had roughly 835 million common shares outstanding. Today, that number stands at about 516 million, a decrease of almost 4% annually over the past 13 years. It follows that a sustained repurchase program will continue to boost earnings per share growth.

Of course none of this is to suggest the company is without risks. Although Kroger is a very large grocer  selling nearly $100 billion a year, it has to compete with the likes of Wal-Mart (WMT) and Target (TGT), not to mention every local grocery that you can imagine. Further, the mega retailers can afford to use the grocery segment as a loss leader to get customers into the door -- something Kroger is largely unable to do.

In other words, Kroger needs to make money from food sales while the bigger players can afford to subsidize lower food prices in an effort to drum up demand for their higher-margin offerings. Yet, despite this seemingly large disadvantage, Kroger has been able to increase same-store sales every quarter for the last decade.
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