I have been wanting to add additional exposure to the grocery industry into my retirement portfolio for over a year now. I do have a small interest in Walmart and Supervalu. I have been disapointed in my supervalu shares especially after they discontinued the dividend.
With the recent announcement of Whole Foods being purchased by Amazon I had my opportunity. Kroger (KR) is a pure-play grocery chain equity with very good fundementals. It has had a double whammy in the past few weeks with its announcement that food deflation is affecting its revenue guidance for the year. With the Amazon/ WHole foods merger announcement that was all it took for investors to broadly sell KR. Here is a 1 month chart showing the bloodshed.
This is a massive selloff from the 52 week high of $37.97. This also brought the P/E ratio to a much more acceptable 13.99. The company has been growing its dividend for more than 10 years at double digit percentage increases. Even with the revenue decline the payout percentage is safe as the EPS are currently at $1.66 and the current payout is only $0.50. They are paying out less than 30% of earnings back to shareholders. The current yield of 2.2% with very probably increases makes this a very attractive income stock to me.
My belief is that food deflation is a short term phenomenon. So if you think the same way as I do consider KR. I consider it a screaming bargain right now with the recent selloff. Let me know in the comments if you think I am missing something or just have any other insights.
Disclosure: I own shares of KR, WMT, SVU in my retirement IRA. Nothing in my post constitutes investment advice. Consult your own financial adviser before committing money into an investment.
Chart courtesy of finance.yahoo.com