The consumer staples sector has long been a go-to for investors seeking stability and consistent returns, even when the economy is looking a bit shaky. In 2024, with inflation still running hot and recession fears lurking, the sector has been a surprisingly strong performer. As a group, the S&P 500 Consumer Staples Sector ($SRCS) is up 6% in 2024, narrowly edging past the 5.8% return of the broader S&P 500 Index ($SPX) - and some standouts within the sector are faring even better.

Take grocery giant Kroger (KR), for example. With its extensive network of over 2,800 stores across 35 states, the consumer goods giant has a massive foothold in the staples category. While its merger with Albertsons (ACI) is still awaiting final regulatory approval, Kroger is a force to be reckoned with all on its own. Not only does KR account for a respectable 0.7% of Berkshire Hathaway's (BRK.B) equity portfolio, with the Warren Buffett-led conglomerate holding a stake worth 6.9% - but the grocery chain also boasts an impressive 16-year streak of dividend growth. 

Is this rock-solid dividend stock a must-have in your investment portfolio right now? Let's dive deeper into how Kroger is setting the pace in the consumer staples sector.

Kroger Stock Crushes the Market

Valued at $40.35 billion by market cap, Kroger (KR) is a prime example of how traditional retail can successfully pivot in the digital age. Their savvy blend of physical stores alongside online shopping and delivery has kept them firmly planted as a go-to for everyday essentials. It's this kind of adaptability that's kept them thriving in the consumer staples sector, where others have stumbled.

The past year has been a good one for Kroger stock, with the shares up 16% in the last 52 weeks. However, it's 2024 where the stock has really broken out, up 22.3% on a YTD basis - outperforming the broader S&P by 16.5 percentage points.

Despite the recent bull run, KR stock is still priced to move. The stock's forward price/earnings (P/E) ratio of 12.63 is roughly in line with its historical averages, and a healthy discount to the consumer staples sector median of 17.59. Likewise, the stock trades at a forward price/sales multiple of 0.27 - a fraction of the 1.22 sector median. 

Kroger's robust financial health was further highlighted in its fourth-quarter earnings report, which hit the Street on March 7. The company reported adjusted EPS of $1.34, which beat the consensus estimate by a healthy margin. Revenue of $37.06 billion was also a pleasant surprise, as digital sales climbed over 10% for the period.

Looking ahead, KR guided for full-year EPS of $4.30 to $4.50, while Wall Street is looking for $4.43.

What's the Analyst Forecast for KR?

Despite lingering regulatory uncertainty over its planned merger, the analyst community is slightly more bullish on Kroger, as a whole, than it was a few months ago. With 17 analysts weighing in, the consensus leans towards a “moderate buy.” Eight analysts are all in with a “strong buy" - up from 7 three months ago - 8 are on the fence with a “hold,” and just one suggests a “strong sell.”

The current mean target price for Kroger stock stands at $57.69. This suggests expected upside of only about 3.2% from current levels, though the Street-high price target of $70 represents a premium of 25.2%.

Kroger's Dividend Dominance

Of course, any upside in Kroger shares should be further bolstered by its strong dividend performance. With a dividend yield of 2.01%, Kroger rewards investors with a steady stream of income, based on a moderate payout ratio of 36.78%. This balance indicates that while Kroger prioritizes rewarding its shareholders, it also retains sufficient earnings to fund future growth initiatives. 

The annualized dividend payout of $1.16 per share has been consistently increased over the past 16 years, marking Kroger's financial stability and reliability as a dividend-paying stock.

Wrapping up, Kroger's impressive strides in 2024 position this consumer staples stock as a standout in Warren Buffett's portfolio. With its outsized footprint in a recession-resistant industry and a dividend backed by nearly two decades of steady growth, Kroger not only promises stability, but also the potential for future growth.