Kroger: The Undervalued Dividend Champion with a Double-Digit Buyback Boost

The grocery retail sector has long been a cornerstone of defensive investing, but few names combine the allure of a growing dividend with the power of aggressive share repurchases like The Kroger Co. (KR). As 2026 unfolds, Kroger stands out as a compelling case study in earnings leverage and capital efficiency, with a recent $2.9 billion share repurchase authorization and a 9% dividend hike underscoring its commitment to shareholder returns. Despite a current price-to-earnings (P/E) ratio of 55.29-well above historical averages-Kroger's valuation appears justified when viewed through the lens of its capital allocation strategy and operational resilience.

A Dividend Legacy with Room to Grow

Kroger's dividend history is a testament to its stability and confidence in long-term cash flow. The company's board recently raised the quarterly dividend to $0.35 per share, effective December 2025, marking a 9% increase from the prior rate. This brings the annualized dividend to $1.40 per share, translating to a forward yield of approximately 2.25% at the January 2026 stock price of $62.48. While this yield may lag behind high-growth tech stocks, it outpaces many traditional consumer staples peers, particularly given Kroger's track record of consistent increases. Since 2015, the company has boosted its dividend annually, reflecting a disciplined approach to capital returns that aligns with its broader strategy of balancing reinvestment in operations with shareholder value creation.

Share Repurchases: The Engine of Earnings Leverage

Kroger's share repurchase program has emerged as a critical driver of earnings per share (EPS) growth. In Q3 2025, the company completed a $5 billion accelerated share repurchase (ASR) program under its $7.5 billion authorization, reducing outstanding shares by a meaningful margin. This effort was followed by an additional $2 billion repurchase authorization in December 2025, bringing total available capacity to $2.9 billion. With approximately 35% of shares repurchased since 2015, Kroger's buybacks have consistently offset dilution and amplified EPS, even as it navigates macroeconomic headwinds.

The impact of these repurchases is already evident in Kroger's adjusted earnings performance. For Q3 2025, adjusted FIFO operating profit reached $1.089 billion, and adjusted EPS rose to $1.05 from $0.98 in the prior year. While a $2.6 billion impairment charge on its automated fulfillment network dragged down GAAP results, the adjusted figures highlight the company's underlying profitability. By retiring shares, Kroger is effectively converting its capital allocation into a compounding mechanism for earnings, a strategy that becomes increasingly potent as the stock trades at a discount to its intrinsic value.

Valuation: A Premium for Future Growth

Kroger's current P/E ratio of 55.29 may seem lofty at first glance, especially when compared to the grocery retail industry's average of 13.09 as reported by industry data. However, this discrepancy reflects divergent investor expectations. While peers like Target Corporation (P/E of 11.80) and Sprouts Farmers Market (P/E of 15.16) trade at lower multiples, they lack Kroger's aggressive buyback program and robust balance sheet. Kroger's trailing twelve months (TTM) EPS of $3.94 suggests that the market is pricing in significant future growth, particularly as the company's share repurchases continue to reduce the denominator in the EPS equation.

Moreover, Kroger's P/E ratio remains below its 3-year (15.38), 5-year (15.16), and 10-year (14.56) averages as indicated by historical data, indicating that the current valuation is an outlier rather than a permanent feature. This anomaly creates an opportunity for investors who recognize that the company's capital allocation discipline-funded by strong cash flows and an investment-grade credit rating-will drive earnings growth over the next 12–24 months.

The Case for 2026

Kroger's combination of a growing dividend, double-digit buyback boost, and earnings leverage positions it as a standout in the dividend stock universe for 2026. The company's recent capital allocation moves, including the $2.9 billion repurchase authorization, demonstrate a clear commitment to maximizing shareholder value. Meanwhile, its adjusted earnings trajectory-bolstered by operational improvements and a shrinking share count-suggests that the market may yet reprice the stock higher as the benefits of these initiatives materialize.

For investors seeking a balance of income and growth, Kroger offers a rare trifecta: a reliable dividend, a disciplined buyback program, and a valuation that appears to discount future potential rather than current performance. As the grocery sector evolves, Kroger's proactive approach to capital returns could cement its status as the top dividend stock of 2026.