At the beginning of the month, I published at article that highlighted 4 stocks that give bigger raises than most jobs. This time, I wanted to highlight one specific company that sits at a discounted valuation and has the potential for attractive dividend raises going forward.
The company that I am highlighting has increased its dividend by 225% over the last decade. So if you invested in this company for ten years, your annual dividend income would have more than tripled.
Walk through any grocery store right now and pay attention to what actually goes into people’s carts. The store brand sits on the shelf next to the name brand, usually a couple of dollars cheaper, and more often than it used to, it’s the one that goes in the cart.
Costco COST 0.00%↑ is a good example of this — people love Kirkland products because it offers quality at a discounted price. Times are changing and consumers are more open to buying store brands, especially if the quality is the same or better than national brands. When I go to Costco, I walk right past the Poland Springs water and grab the Kirkland water instead.
It’s all seems to operate in cycles. Groceries get expensive, people switch to the cheap version to get through it, and then wages catch up and the big brands run promotions until everyone comes back. Store brands would pick up a point or two of market share during the rough stretch and hand it right back when things improved. That pattern held for about three decades, through every recession anyone reading this has lived through.
What broke the pattern is that none of that happened this round. Store brands took 23.8% of every item sold in American grocery stores in the first half of 2026, which is a record, while national brand unit sales actually fell 0.5%. That is happening with employment strong and wages rising, which is exactly when the old pattern says people should be trading back up.
I believe this is an opportunity for investors to accumulate high quality consumer businesses at a discount. The company I am highlighting today trades at a lower forward price-to-earnings ratio than its average range over the last three years. Buying at a discount is my specialty, so I will be adding shares here as well.
👉 My June buy alerts are up more than 25%. Paid subscribers get every alert first.
What Actually Changed In The Cart
Bank of America tracks card spending across its entire customer base, and in July total spending per household was up 5.0% from a year earlier. In that same month, after-tax wage growth for lower income households passed higher income households for the first time since December 2024.
People have more money than they did and they are still buying the store brand, which makes this a clear customer preference. So the question worth answering is how a preference like that forms, because preferences are a lot harder to reverse than a budget problem.
I think it all starts as a price decision. Grocery inflation ran into double digits in 2022, people reached for the cheaper version to get through the month, and everyone in the industry treated that as a temporary trade. What nobody accounted for is that the products had gotten good. Retailers had spent years upgrading their own lines while the national brands were busy raising prices, so the shopper who grabbed the store brand yogurt out of necessity opened it, ate it, and could not tell the difference.
Once that happens, there is no going back to paying thirty percent more for the label.
People will stretch a grocery budget in a dozen places before they downgrade what they feed the dog or what they pour on a Friday night. When store brands start winning there, you are watching people buy what they actually want.
The obvious pushback is that people are going broke and putting groceries on a credit card. The data says the opposite.
Households in all three income groups are paying off more of their balances than they were, not less. Nobody is funding groceries with revolving debt and then choosing the cheap yogurt out of desperation. They just prefer it now.
Aldi and Trader Joe’s run roughly three quarters store brand by volume, so a shopper who grew up in those aisles never had national brand loyalty to lose. For them the store brand is simply what the product is, and the name brand is the more expensive thing sitting beside it.
Store brands now take nearly 39 cents of every dollar spent in the refrigerated aisle. That’s the center of the store and the highest traffic section in the building. Ten years ago everyone assumed dairy and deli were too personal for shoppers to give up.
One large American grocer reported earnings yesterday. Its own private label line grew more than 14% in the quarter.
I’ll name the company below.
Kroger (KR): The Shelf Owner On Sale
The company is Kroger KR 0.00%↑, and I have not bought it yet. It has been sitting on my watchlist while I worked through the data above, and after this week’s earnings I plan to open a position in the next several days. It owns Our Brands, one of the largest private label operations in the country, and it sits on the receiving end of everything I just walked through. Every time a Kroger shopper swaps a national brand for Our Brands, Kroger keeps more of that dollar than it did before.
Kroger now trades near the bottom end of its 12-month range, which I think is a bit dramatic.
They reported Q2 on September 11, and the market read one line and sold. Identical sales without fuel grew 0.2%, down from 3.4% a year ago, and management cut full-year identical sales guidance from 1% to 2% down to 0.2% to 0.8%.
Read the rest of the release and a different business shows up.
Private Selection, their own label, grew more than 14%. Adjusted e-commerce sales grew 20% and got more profitable. Kroger Precision Marketing, the retail media arm and the highest margin thing they own, grew profit 24%. Adjusted EPS came in at $1.09, up 5%, ahead of the $1.05 analysts expected.
Operating profit came in at $971 million against $863 million a year ago, up 12.5%, and GAAP earnings per share went from $0.91 to $1.05. Then look at what management did with guidance. They cut the sales forecast and REAFFIRMED adjusted EPS of $5.10 to $5.30 and operating profit of $5.0 to $5.2 billion.
The sales weakness also has explanations with expiration dates. Pharmacy reimbursement changes from the Inflation Reduction Act cost about 140 basis points of identical sales. A cyclospora outbreak hit produce late in the quarter. Egg deflation pulled dollars out of the comparison. None of those are the grocery business breaking, and all of them roll off.
They reaffirmed free cash flow guidance of $2.7 to $2.9 billion as well, and the balance sheet has room in it. Net total debt to adjusted EBITDA sits at 1.91 against a target range of 2.30 to 2.50, meaning they are carrying less debt than they are willing to carry.
Dividend Growth
A 2.7% yield is not exciting next to the funds I normally cover, and the reason I am buying anyway comes down to the direction and the speed of it.
The payout went from $1.22 in 2024, to $1.34 in 2025, to a projected $1.48 this year, which works out to roughly 10% a year. The most recent increase took the quarterly payment from $0.35 to $0.39, an 11.4% raise announced while the share price was falling, and it marked the 20th consecutive year they have raised the dividend. That streak covers the 2008 financial crisis, the 2020 shutdown and the inflation of 2022, which is a longer record of raises than most of the funds I write about have been alive.
There is a second thing happening to your share of this company that does not show up in the yield at all. They repurchased $1.0 billion in the quarter and $1.2 billion year to date under a $2 billion authorization, with roughly $800 million left that management expects to finish by year end.
Buy at a 2.7% yield with 10% dividend growth and your yield on cost hits about 4.4% in five years and 7.1% in ten, without adding another dollar. That’s my own math and it assumes the growth rate holds, which nobody guarantees.
I think the growth continues for the same reason I want to own the company in the first place. Private label carries better margins than reselling someone else’s brand, so as Our Brands takes more of the basket, the profit behind every sales dollar goes up. A dividend growing off improving margins lasts a lot longer than one growing off cost cuts.
Valuation
Kroger trades near 11 times forward earnings. Walmart and Costco, the two names everyone points to as winners of this shift, trade around 37 and 44 times against a sector median closer to 16, and both of them yield under 1%.
Kroger is the worse business and I’m not going to pretend otherwise. Walmart and Costco have scale, growth and balance sheets Kroger can’t touch, and they deserve a premium for it.
Use the company’s own reaffirmed guidance rather than an analyst estimate. At $5.10 to $5.30 of adjusted EPS and a share price near $57, you are paying about 11 times what management says they will earn this year. Add a 2.7% dividend growing double digits, a 30% payout ratio, $1.2 billion of buybacks in the first half alone, and reaffirmed free cash flow of $2.7 to $2.9 billion, and this price assumes almost nothing goes right.
Sources
Consumer data: Bank of America Institute Consumer Checkpoint, August 2026 for the spending, wage and credit exhibits, PLMA store brand facts, the PLMA and Circana midyear 2026 report, and Circana full year 2025 data.
Company data: Kroger’s Q2 2026 earnings release and tables for the quarter, guidance, buyback and share count, the FY2026 10-K for dividend history, plus quote and earnings coverage. Figures as of mid-September 2026 and subject to change, so verify before acting.