{"id":86074,"date":"2023-11-18T13:31:22","date_gmt":"2023-11-18T18:31:22","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/kroger-a-dirt-cheap-warren-buffett-stock-worth-buying-today-nysekr\/"},"modified":"2023-11-18T13:31:25","modified_gmt":"2023-11-18T18:31:25","slug":"kroger-a-dirt-cheap-warren-buffett-stock-worth-buying-today-nysekr","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=86074","title":{"rendered":"Kroger: A Dirt-Cheap Warren Buffett Stock Worth Buying Today (NYSE:KR)"},"content":{"rendered":"
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Berkshire Hathaway Chairman and CEO, Warren Buffett.<\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Alongside Vice Chairman and his trusted business partner Charlie Munger, Warren Buffett has reshaped the trajectory of Berkshire Hathaway (BRK.A)(BRK.B) since taking total control over the company in 1965. The company has transformed from a fledgling textile manufacturer into the most powerful investment holdings company on the planet. Including its $157 billion cash balance as of September 30, Berkshire Hathaway’s investment portfolio is worth approximately <\/span>$513 billion as of November 17, 2023.<\/span><\/p>\n

Munger has had a significant impact on Buffett’s investing strategy. Rather than buying fair businesses at wonderful valuations that his mentor Benjamin Graham taught him, Buffett shifted gears. For decades now, the Oracle of Omaha has stood by the investment philosophy of buying wonderful businesses at fair or better valuations.<\/p>\n

One business that’s right up Berkshire Hathaway’s alley is the well-known supermarket chain Kroger (<\/span>NYSE:KR<\/span>). The holding company owns a 7% stake in the retailer worth $2.1 billion. For the first time in <\/span>over four years, let’s dig into what Buffett and company saw in Kroger and why I still think the stock is a buy.<\/span><\/p>\n

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DK Zen Research Terminal<\/span><\/p>\n<\/figcaption><\/figure>\n

Kroger’s 2.7% dividend yield clocks in at nearly twice the 1.5% yield of the S&P 500 index (SP500). As a testament to just how cheap we’ll find this stock to be, this above-average yield isn’t due to an elevated payout ratio, either. Kroger’s 24% EPS payout ratio is about a third of the 70% payout ratio that credit rating agencies consider to be safe for the grocery retailer industry.<\/p>\n

The company also appears to be in fine financial health: Kroger’s 61% debt-to-capital ratio is just below the 65% debt-to-capital ratio that rating agencies like to see from its industry. This is why the company earns an investment-grade BBB credit rating from S&P on a stable outlook. That implies Kroger is at a still reasonably low 7.5% probability of going bankrupt in the next 30 years per Dividend Kings.<\/p>\n

For these reasons, it’s not hard to see why Dividend Kings estimates the risk of a dividend cut from Kroger in an average recession is just 1%.<\/p>\n

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DK Zen Research Terminal<\/span><\/p>\n<\/figcaption><\/figure>\n

While Kroger’s sound fundamentals are encouraging, the current valuation is equally enticing. Based on historical dividend yield and P\/E ratio, the stock’s historical fair value is $63 a share. That suggests Kroger is 33% discounted relative to fair value from its current $42 share price (as of November 17, 2023).<\/p>\n

If Kroger delivers earnings growth in line with the consensus and returns to fair value, total returns in the coming 10 years could be as follows:<\/p>\n