I still remember the famous “Be like Mike” Gatorade commercials from when I was a kid. But I was never very good at basketball.
Instead, I want to be like Buffett. Yep. Warren Buffett.
He built a fortune of $100 billion purely through investing. And if he hadn’t already given away billions of dollars to charity, he’d be worth $200 billion today. He’s basically the GOAT of investors.
The cool thing about it is, us regular retail investors can buy the same stocks he does. He manages a $300 billion common stock portfolio within his conglomerate Berkshire Hathaway (BRK). And Berkshire Hathaway releases a 13F filing within 45 days of every quarter close, which shows what stocks they bought and sold for the portfolio.
Now, Buffett does have two lieutenants helping to manage the portfolio – Todd Combs and Ted Weschler. So we can never be sure which stocks Buffett is buying and selling. But Todd and Ted have been hand picked by Buffett to act as his… proxy.
Today, I want to tell you which stock Berkshire Hathaway has been buying up like crazy.
Ready? Let’s dig in.
The stock that Buffett and his team can’t get enough of is Kroger Co. (KR). Kroger is an American retail company with a market cap of $35 billion.
Kroger operates more than 2,700 supermarkets across 35 states (and the District of Columbia), in addition to multi-department stores, pharmacies, jewelry stores, fuel centers, and food processing plants.
Did Buffett buy this stock himself? Hard to say. But I can say, it’s a classic Buffett stock.
Buffett likes to see a number of things before he buys a stock. He wants a simple business model that he can understand, to make sure its within his circle of competence. Well, this is a grocery store chain. It’s not difficult to understand how that works, especially considering that Buffett worked at a grocery store as a kid.
Another classic Buffett element of this stock is the buybacks.
You know what else is classic Buffett here? The fact that this stock pays a growing dividend.
That’s right. Buffett loves a stock that pays a growing dividend. As do I. See, Buffett likes to collect safe, passive, growing cash flow, which he can store up and use to redeploy into investments as he sees fit. Now, Kroger’s yield of 1.8% isn’t setting the world on fire. But that’s no problem.
Buffett doesn’t chase after high-yield, low-quality junk stocks.
Nor do his lieutenants. As I’ve said a million times, you shouldn’t be chasing yield. Berkshire gets this. They understand how compounding works, especially when you’re able to reinvest growing dividends back into other high-quality stocks also paying growing dividends.
Kroger has increased its dividend for 16 consecutive years.
High-quality dividend growth stocks are able to routinely increase their dividends because they’re routinely increasing their profits. That’s how it works. A growing dividend is an excellent initial litmus test for business quality, as it’s almost impossible to run a terrible business while simultaneously paying out a growing dividend for decades on end. Their 10-year dividend growth rate is 13.3%. In fact, they increased their dividend by nearly 17% only two months ago. And with the dividend sucking up less than 30% of this year’s expected adjusted earnings, the dividend is plenty safe. Kroger is quietly compounding their shareholders’ wealth.
Investing just $1,000 into this stock 10 years ago would have turned into nearly $5,000 today. Five times your money. In 10 years. On a grocery store. Investing doesn’t need to be complicated, guys. Also, this stock is up more than 40% YTD. Now we can see why Buffett has been buying.
Berkshire Hathaway picked up more than 10 million shares of Kroger during the second quarter of this year.
They can’t keep their hands off this grocery store. Their position in Kroger now stands at over 61 million shares. This position is now worth over $2.8 billion at the current price of Kroger stock.
Another thing about Kroger stock that’s classic Buffett? Value.
Buffett wants to invest in high-quality, easy-to-understand businesses that are available at a good value. Price is what you pay. Value is what you get. And Buffett likes good value for his money. Well, Kroger has been cheap for a while now, which is why they’ve been loading up on the stock. However, after a 40%+ runup this year, the stock no longer has that extreme, obvious value.
Despite the big move, though, the stock doesn’t look unreasonably valued.
When Berkshire was buying up Kroger stock throughout the second quarter of this year, it was often bumping up against $40/share, spending much of its time in the high $30s. It’s now at $46/share. So it’s higher. But not extremely so. And the valuation hasn’t become overly demanding, either.
I would say it like this: Kroger stock is simply no longer clearly undervalued.
Most of the basic valuation metrics are ahead of their respective recent historical averages. But like I said, it’s a case where this stock has been cheap for a while now. The market is starting to appreciate it. Keep in mind, Kroger is guiding for $3.03 at the midpoint in adjusted EPS for this fiscal year. So the forward P/E ratio is slightly over 15. There’s nothing crazy about that.
If you’re looking for a classic Warren Buffett dividend growth stock that Warren Buffett is personally exposed to in the $300 billion stock portfolio he manages – a stock his firm has been buying up left and right and now has almost $3 billion invested in – Kroger should be on your radar.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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