Kroger (KR 0.48%) stock is looking more attractive at the close of 2021. In early December, the supermarket retailer announced operating results that position it for a great holiday shopping season. Kroger is succeeding in key growth initiatives, including its digital selling channel and its in-store grocery brands. Cash flow is strong, too, which implies rising cash returns for investors.

So, let's take a closer look at the business heading into 2022 to see if Kroger is a good buy for investors seeking a balance between growth and income.

Person shopping for beer.

Image source: Getty Images.

The latest results

Sales trends through early November showed no hint of the type of slowdown that many investors had feared. Comparable store sales were up 3%, year over year, in fact, and jumped 14% compared to two years ago, before the pandemic struck. That two-year expansion rate matched Kroger's strong growth pace in the previous quarter and included a 100+% spike in digital sales.

In a conference call with investors, CEO Rodney McMullen said sales are being lifted by what management believes is a structural shift in how consumers prioritize making their own meals. "Customers," he said, "are eating more food at home because it's more affordable, convenient, and healthier than other options." Kroger's huge national sales footprint makes it a major beneficiary of these changes.

Profits and cash flow

The chain faced profit pressure from rising costs and, in some cases, couldn't pass along higher prices to shoppers. Gross profit margin slipped by less than one percentage point compared to two years ago.

However, that was a modest decline. And Kroger notched enough financial wins to suggest accelerating earnings growth ahead. Its new ultra-fast delivery offering was highly profitable, management said, and is helping the chain move toward double-digit adjusted operating margin, a goal that executives have set for 2023.

Cash flow was impressive, too, and allowed Kroger to reduce its debt level, pour cash back into the business, and spend freely on stock repurchases. Management is expecting to achieve $2.5 billion of free cash flow this year, compared to operating profit of roughly $4.1 billion.

Good reasons to buy

More of that cash should be headed investors' way in 2022, even if Kroger decides to make further major acquisitions in service of its growth initiatives. And the company raised its short-term outlook for the second straight quarter. Executives now see two-year comparable-store sales rising 14%, up from the prior target of 13%.

There are faster-growing stocks in the industry. Walmart (NYSE: WMT), Kroger's main competitor, is growing at a 16% two-year pace today and appears to be winning market share in the critical fresh food niche.

But investors might still want to take a closer look at Kroger stock. Its bets on the digital sales channel have room to speed its expansion pace in 2022. And, if the company can hit management's aggressive profitability goals, then earnings will rise dramatically over the next few years.

Finally, Kroger still pays a higher dividend yield than most rivals, even after the stock's jump in 2021. At 1.80%, that yield beats the wider markets' and is well above Walmart's and Costco's (NASDAQ: COST) payouts. As a result, income investors might want to keep the chain on their watchlists as a balanced growth bet in 2022 and beyond.