Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Kroger in Focus

Based in Cincinnati, Kroger (KR) is in the Retail-Wholesale sector, and so far this year, shares have seen a price change of 4.3%. The supermarket chain is paying out a dividend of $0.32 per share at the moment, with a dividend yield of 2.01% compared to the Retail - Supermarkets industry's yield of 1.82% and the S&P 500's yield of 1.59%.

In terms of dividend growth, the company's current annualized dividend of $1.28 is up 4.9% from last year. In the past five-year period, Kroger has increased its dividend 5 times on a year-over-year basis for an average annual increase of 16.66%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Kroger's payout ratio is 27%, which means it paid out 27% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for KR for this fiscal year. The Zacks Consensus Estimate for 2025 is $4.77 per share, representing a year-over-year earnings growth rate of 6.71%.

Bottom Line

Investors like dividends for a variety of different reasons, from tax advantages and decreasing overall portfolio risk to considerably improving stock investing profits. However, not all companies offer a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, KR is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

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The Kroger Co. (KR) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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