I'll admit it. The traditional grocery business isn't an exciting industry for investment potential. Profit margins are low, with almost zero chance of spiking higher. Meaningful sales growth is hard to find, too. And grocery stores suffer from the constant threat of having more nimble retailers push into their markets, as we saw with Amazon.com's latest expansion of its food delivery business.
However, the safest path to big investment returns is through buying into years of predictable growth at a reasonable price. That's why I think Kroger (KR -0.50%) stock could be a great option for long-term investors right now.
Kroger chugs along
The grocer's latest earnings show the kind of steady results that most companies can only dream about. With a 3.3% boost in sales, Kroger notched its 38th consecutive quarter of growth at its existing stores. Customers responded to the company's investments in its locations by making more frequent visits, and by purchasing more products per trip. Packed register lines brought quarterly revenue to an all-time high $30 billion, and profits were up about 10%, to $481 million.
KR Revenue Quarterly data by YCharts
That growth places the company firmly in between Whole Foods Market (WFM), which is growing comparable sales at 7%, and Wal-Mart (WMT 0.66%), with its 1.4% decline last quarter. Still, Kroger is valued cheaper than both of these retailers. At just under 12 times earnings, shares are a deal compared with Wal-Mart's 15 P/E, or Whole Foods' 37.
Steady returns to shareholders
Investors who buy into Kroger at that price have every reason to expect steady -- if not exciting -- long-term returns. The company targets earnings growth of between 8% and 11%, with a dividend of between 2% and 2.5%, for total annual growth as high as 13.5%. Kroger easily hit those targets last year. Earnings doubled versus 2011, and its dividend payout grew by 4%, to $267 million.
As for the rest of 2013, Kroger's strong first quarter allowed it to raise its profit guidance for the year, to the high end of its long-term target. But the market just yawned at the news. Kroger's stock is sitting almost exactly where it was a quarter ago. Still, that's good news for investors looking to own a piece of a boring business with exciting potential returns.
