The 6 Big Grocery Store Stocks Ranked | Deep Industry Analysis

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The 6 Big Grocery Store Stocks Ranked | Deep Industry Analysis


Updated on December 31st, 2021 by Bob Ciura

Grocery stocks are in an uncertain position. Industry trends are changing, as more consumers gravitate toward online shopping and grocery delivery, trends that were accelerated during the coronavirus pandemic.

Meanwhile, competition among grocery stocks is heating up. E-commerce giant Amazon.com (AMZN) made a huge entry into grocery with its ~$14 billion acquisition of Whole Foods, and is in the process of rolling out its cashier-less technology.

Other grocery stocks such as Costco Wholesale (COST), Walmart Inc. (WMT), Kroger (KR) and Target (TGT) have seen great success with their own e-commerce platforms.

Many of these grocery stocks remain attractive for dividend growth investors. For example, Wal-Mart and Target are both members of the Dividend Aristocrats.

The Dividend Aristocrats are a group of 65 stocks in the S&P 500 Index, with 25+ years of consecutive dividend increases.

The requirements to be a Dividend Aristocrat are:

You can download an Excel spreadsheet of all 65 Dividend Aristocrats (with important financial metrics such as dividend yields and payout ratios) by clicking the link below:

 

Costco and Kroger are members of the Dividend Achievers list, a group of stocks with 10+ years of consecutive dividend growth.

You can see the entire list of all ~351 Dividend Achievers by clicking here.

These retailers are all making progress to better compete with Amazon, adapt to the changing consumer demands, and continue generating growth.

This article will discuss the top 6 grocery stocks ranked in order of expected returns.

Table of Contents

We have ranked the top 6 grocery stocks according to expected returns. The grocery stocks are listed from lowest to highest five-year expected total returns. You can use the following links to instantly jump to any specific stock:

Best Grocery Stock #6: Costco Wholesale (COST)

Today, Costco is a diversified warehouse retailer that operates about 800 warehouses that collectively generate about $217 billion in annual sales.

Costco reported first quarter earnings on December 9th, 2021, and results were much better than expected on both the top and bottom lines. Costco reported revenue of $50.4 billion, which was 16.5% higher than the yearago period and beat estimates by more than $600 million.

The gain was due largely to a 9.8% comparable sales increase after excluding gasoline sales and foreign exchange, which is the metric Costco uses to measure store and ecommerce performance.

Click here to download our most recent Sure Analysis report on Costco (preview of page 1 of 3 shown below):

Best Grocery Stock #5: Kroger Co. (KR)

Founded in 1883, Kroger has nearly 2,800 retail stores under two dozen banners, along with fuel centers, pharmacies and jewelry stores in 35 states. The $32 billion company serves nearly 11 million customers a day.

On June 24th, 2021, Kroger increased its quarterly dividend by 16.7% to $0.21.

On December 2nd, 2021, Kroger reported Q3 fiscal year results for the period ending November 6th, 2021. (Kroger’s fiscal year ends the Saturday closest to January 31st.) For the quarter Kroger reported $31.86 billion in sales, up 7.2% compared to Q3 2020. Excluding fuel, sales increased 2.9% compared to the year ago period.

Digital sales were up 103% compared to two years ago, as this segment continues to be an important part of the business. Adjusted earningspershare equaled $0.78 compared to $0.71 in Q3 2020.

Click here to download our most recent Sure Analysis report on Kroger (preview of page 1 of 3 shown below):

Best Grocery Stock #4: Sprouts Farmers Market (SFM)

While big-box stores struggle in grocery, niche players have found success, especially in areas that cater to a more health-conscious consumer. One example is Sprouts Farmers Market, a health-oriented grocery store that specializes in natural and organic foods. Sprouts had its initial public offering in 2013.

It offers a wide range of products, including fresh produce, bulk foods, supplements, meat and seafood, deli, baked goods, dairy, and more. Approximately 90% of its more than 20,000 products are either natural or organic. Sprouts operates more than 300 stores across the U.S., predominantly in the Southwest and Southeast.

We expect 5% annual returns, due to 5% expected EPS growth per year and a flat valuation multiple. The stock does not currently pay a dividend.

Best Grocery Stock #3: Target (TGT)

Target was founded in 1902 and has operations solely in the U.S. market. Its business consists of about 1,850 big box stores, which offer general merchandise and food, as well as serving as distribution points for the company’s ecommerce business. Target should produce about $106 billion in total revenue this year.

Target reported third quarter earnings on November 17th, 2021, and results were ahead of expectations on both revenue and adjusted profits. Total revenue was $25.65 billion, which was 13% ahead of the same period a year ago, and beat expectations by more than $1 billion, a very strong performance. Store comparable sales were up 9.7% yearoveryear, while digital comparable sales were up 29%.

Click here to download our most recent Sure Analysis report on Target (preview of page 1 of 3 shown below):

Best Grocery Stock #2: Walmart Inc. (WMT)

Walmart traces its roots back to 1945 when Sam Walton opened his first discount store. The company has since grown into one of the largest retailers in the world, serving around 230 million customers each week. Revenue will likely be well in excess of $500 billion this year and the stock trades with a market capitalization near $400 billion.

Walmart reported third quarter earnings on November 16th, 2021, and results were better than expected for both the top and adjusted bottom lines. Total revenue was up 4.3% to $141 billion, powered by comparable sales of +9.9% in the US.

That beat consensus estimates for a gain of 6.9%, as transaction count rose 5.7%, and the average ticket was higher by 3.3%. Ecommerce sales were up 8% during the quarter and were 87% higher than the same quarter of 2019. Sam’s Club sales were up 13.9% while membership income rose 11.3%.

Click here to download our most recent Sure Analysis report on Walmart (preview of page 1 of 3 shown below):

Best Grocery Stock #1: Amazon.com, Inc. (AMZN)

Amazon is an online retailer that operates a massive e-commerce platform where consumers can buy virtually anything with their computers or smartphones. It operates through the following segments:

The North America and International segments include the global retail platform of consumer products through the company’s websites. The Amazon Web Services segment sells subscriptions for cloud computing and storage services to consumers, start-ups, enterprises, government agencies, and academic institutions.

Amazon’s sales reached $386 billion in 2020. In the 2021 third quarter, Amazon’s revenue increased 15% to $110.8 billion.

We expect 10% annual returns for Amazon stock, due to 10% earnings-per-share growth, and a flat valuation. Amazon does not pay a dividend.

Final Thoughts

The grocery industry is changing like never before. Now that Amazon has acquired Whole Foods, it is likely the company will accelerate its push into the grocery industry even further, especially with new technologies such as cashier-less stores.

That said, the top grocery stocks have decades of experience in the retail industry. They have proven the ability to navigate difficult conditions before, and adapt when necessary.

Broadly speaking, the grocery industry is attractive for investors right now. Investors looking to buy grocery stocks should focus on those with durable competitive advantages, and the financial strength to continue investing in growth.

Target and Walmart have the longest histories of annual dividend increases, while Kroger and Costco have provided strong dividend growth over the past several years.

Amazon does not currently pay dividends, but in return could be a higher-growth pick.

Further Reading: 7 Best Food Stocks Now, Ranked In Order

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