Kroger offers patient investors an unusual pairing right now: a forward earnings yield near 8.8% and a dividend that has just risen for the 20th straight year. Yet the same quarterly report that supports that picture also contains a warning about the one number a grocer cannot fake for long, which is organic sales growth.
Start with the cheap side. At roughly $61.64 a share, Kroger trades around 11.3 times forward earnings. In a world where Treasury yields remain a meaningful alternative, an earnings yield of nearly 9% is a real premium for owning equity risk. The annual dividend was lifted from $1.40 to $1.56 per share, a yield of about 2.5%, and the company has held its full-year adjusted earnings guidance at $5.10 to $5.30 per share.
Now the quieter problem. In the second quarter, sales rose to $34.62 billion from $33.94 billion, and adjusted earnings per share edged up to $1.09 from $1.04. But identical sales, the cleanest read on whether shoppers are really spending more in existing stores, grew only 0.2%, compared with 3.4% a year earlier. Management has since cut its full-year identical-sales outlook to a range of just 0.2% to 0.8%. Adjusted e-commerce sales, up 20%, are a genuine bright spot, but they are not yet large enough to offset a stalling core.
That gap matters because grocery is a thin-margin business. Earnings growth has to come from somewhere, and with volume flat, the burden falls on cost control, private-label mix, pharmacy services and digital profitability. Those levers are real, and the 20-year dividend record suggests a management team that treats the payout seriously. But they are finite. Cost savings cannot compound indefinitely the way a growing customer base can.
It is also worth being honest about what a low multiple means. Grocers have always traded at modest valuations because margins are slim and room for expansion is limited. A forward P/E near 11 may simply be the fair price for a mature, defensive franchise rather than a bargain. Comparing Kroger with higher-multiple staples such as Procter & Gamble is useful only if you account for differences in growth and operating conditions.
So what for long-term investors? Kroger is a study in separating a cheap stock from a cheap business. The defensive demand, the earnings yield and the dividend streak form a sturdy floor. The case for compounding, however, depends on identical sales climbing back above inflation-like levels. Watch that single line in the next few reports: if it recovers, today's multiple will look conservative, and if it stays near zero, the dividend growth will increasingly rely on cost cuts alone.