Why Kroger’s Modest Yield Still Makes It a Superior Long-Term Income Play

Key Points

• Interest rates have climbed to multiyear highs, giving income-focused investors an option they haven’t had in years.

• Despite its lower yield, grocery giant Kroger may still be a smarter choice for long-term income investors.

• Dividend growth and potential capital appreciation should weigh heavily in the decision.

Rising rates have created compelling opportunities beyond traditional dividend stocks.

Bond yields have surged from 2024’s lows near 4% to current multiyear highs approaching 5.3% on 30-year Treasuries, forcing income investors to reconsider their options.

Even so, a position in grocery operator Kroger (NYSE: KR) with a forward-looking dividend yield of just 2.6%—roughly half the Treasury rate—could still outperform for patient investors. Here’s why.

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Kroger, by the numbers

Kroger’s dividend yield appears uncompetitive at first glance. Yet the stock offers something bonds cannot: growing income. Over the past decade, Kroger’s quarterly dividend per share rose from $0.12 to $0.39, representing a 12.5% annualized growth rate—one of the fastest expansion rates among dividend payers.

While stock buybacks contributed by reducing shares outstanding by roughly one-third, the company’s ability to sustain aggressive dividend growth stands on its own. Kroger is positioned to continue raising payments at a pace consistent with its recent track record. Unlike bond coupons, which remain fixed regardless of holding period, this compounding dividend growth creates a materially different income trajectory.

Consider the math: ten years from now, a 30-year Treasury purchased today would still yield 5.3%. Assuming Kroger’s historical dividend growth continues, that same 2.6% initial yield could translate to an effective yield near 8% on the original investment. Additionally, the equity stake retains potential for capital appreciation—a benefit bonds do not offer.

Think bigger-picture

This analysis does not suggest everyone should abandon bonds for Kroger. Government debt carries the backing of the issuing government’s ability to print money, while equities offer no such guarantee. Kroger’s dividend growth matters only if investors can remain committed through market cycles. For those seeking temporary income while parked on the sidelines, bonds may indeed be the better vehicle.

In today’s elevated-rate environment, always evaluate the complete picture rather than focusing solely on current yield.

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