Investors seeking to generate positive returns through the stock market turbulence should take a close look at Kroger(NYSE: KR). Shares of the grocery store giant are trading at an all-time high price, up 16% year to date, in sharp contrast to the 10% decline in the S&P 500 index over the period.
Strategic initiatives implemented in recent years are now translating into robust growth and solid earnings for Kroger. With its recession-resistant business model, the stock is well-positioned for further upside over the long run.
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Here are four reasons to buy Kroger stock for your portfolio right now.
1. A consumer staples leader
Kroger is one of the largest supermarket chains in the U.S., operating nearly 2,800 stores under a banner of brands, including King Soopers, Ralph's, and Smith's. While it trails Walmart in total locations and by revenue, Kroger stands out as a pure-play grocery stock, largely unaffected by discretionary retail categories.
This focus on consumer staples could prove advantageous amid concerns regarding the possibility of a broader economic slowdown. People may cut back on spending on products like electronics and household goods during a recession, but food is a necessity.
Kroger ended fiscal 2024 strong and is poised to build on its momentum. In its last reported quarter, identical sales (the company's version of same-store sales) -- excluding fuel -- rose 2.4% year over year for the period ended Feb. 1, reversing the prior year's 0.8% decline.
The company benefits from several growth drivers, including a positive customer response to its expanding private label portfolio, which added over 900 new items last year. Kroger's digital strategy is also gaining traction, with e-commerce delivery sales up 18% in Q4. Additionally, a companywide cost savings initiative is boosting the gross and operating margins.
Looking ahead, Kroger expects identical sales growth of 2% to 3% in 2025, with EPS guidance of $4.40 to $4.80, representing a 3% increase from 2024 at the midpoint.
Image source: Getty Images.
2. Booming advertising and data monetization business
Kroger's outlook for steady, profitable growth, supported by strong fundamentals, underscores its appeal as an investment. Less recognized but increasingly vital are Kroger's alternative profit streams, particularly its advertising and data monetization efforts, which have become a cornerstone of its recent success.
Using proprietary data from serving more than 11 million customers per day and an even larger loyalty program, Kroger delivers targeted ads across digital platforms, in-store displays, and connected television opportunities.
In 2024, Kroger Precision Marketing (KPM) media sales surged 17%, generating $1.4 billion in operating profit and accounting for over 25% of the company's total. These high-margin, tech-driven capabilities, now enhanced by AI-powered insights, have diversified the business and strengthened Kroger's long-term earnings potential.
3. A strong dividend growth outlook
Kroger is also a great stock to own due to its attractive dividend growth profile. It has doubled its quarterly payment over the past five years to $0.32 per share, resulting in a dividend yield of 1.9%. Recent comments from management suggest further dividend growth is likely, supported by an ongoing share repurchase authorization targeting an annual shareholder cash payout yield of 5% to 6%, providing a tailwind for stock price gains.
Perhaps the best reason to buy Kroger shares now is that, despite its strengths, the valuation remains compelling. The stock trades at a forward price-to-earnings (P/E) ratio of 15, based on consensus 2025 EPS. That represents a significant discount to the broader market and peers like Walmart, with a forward P/E of 35, and Costco Wholesale, with a ratio closer to 55.
A strong case can be made that Kroger deserves a wider earnings premium, given its growing media business and digital sales, as well as its rising profitability margin. As company results over the next few quarters reaffirm Kroger's resiliency in a challenging economic environment, shares should continue to perform well.
Ultimately, investors will be hard-pressed to find a stock that combines Kroger's value, growth, and operating stability in today's market.
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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale and Walmart. The Motley Fool recommends Kroger. The Motley Fool has a disclosure policy.
