Don't Go Shopping for Dividends at Supervalu
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Supervalu (NYSE: SVU), shares fell as if Goldman Sachs made an after-hours call to shanghai the stock. The company that owns seemingly sustainable supermarkets such as Albertson’s, Sav-A-Lot and similar grocery chains reported a 45% decline in net income for the first quarter. Citing increased competition from market stalwarts, Wal-Mart (NYSE: WMT), and Target (NYSE: TGT), as well as myriad dollar stores, beating the stock down more than 25% after the announcement, this after already being down 35% for 2012.
This recent demise has the company under serious scrutiny, including suspending the current dividend, and speculation that the “For Sale” sign might be firmly planted in the front yard. That juicy 6.8% dividend yield paying loyal shareholders 35-cents per share annually, gone. I have beaten the high-yield horse into the ground this summer; it’s as tiresome as a Jay Leno monologue. And we have to wisely scope out what is simply a high-yielding dividend, and what is a “safe” dividend that makes sense.
Believe me, my inbox has been inundated with far too many “buy” recommendations for Supervalu over the years, and I have ignored them all, shunning that sexy dividend each time. I have never owned shares with Supervalu, never cared to. I would prefer to have my hard-earned dollars invested with the likes of Wal-Mart or Target, which offer dividend yields of 2.2% and 2.4%, respectively. And it’s not just because of what’s on the balance sheets.
I have often mentioned that homework includes not only our ongoing research, charts, analyst opinions, news, and conference calls, but also our daily routines and experiences. I have actually visited more than a few of Supervalu’s stores, even in a former career supporting their point-of-sale systems. I am fairly close to an Albertson’s where I live, where there happens to be a Wal-Mart less than a mile from them, and from Wally World, less than the length of two football fields, a Target beckons. About another mile down a major road, a Brookshire’s sits. Every one of my neighbors is rife with options.
Consumers are a funny bunch. Some are loyal to a fault. Some are altruistic. Others enjoy what appeals to their senses. And there are those that just want to save a dime, up and down every aisle they travel. In my vast experience with the Supervalu folks, I can’t honestly say they do much for me. As the years have gone by, I have noticed an attempt at the “big box” stores to become more appealing to the senses, inside and out. They have reacted to consumer sentiment, offering more healthy options; they are also remodeling the old concrete walls and taking on a more upscale, Trader Joe’s look. If you pull into the parking lot at Albertson’s, you get the same thing you saw ten and twenty years ago, including the burned-out bulbs, meekly displaying the store’s brand. And walking into a confused layout, with the smell of freezer burn and “Buy-1-Get-1-Free” stickers brandished on packages of meat and poultry, seems more of a desperate cry for help, rather than a resounding welcome.
Walking into some of Supervalu’s stores has me questioning whether I want to be shopping there, much less owning their stock. It’s almost as if executive management has been clinging to the dividend like grim death, catering to the shareholder in spite of the business. There are ways to improve, tools are out there that allow these folks to compete. Efforts to maintain your business, see to its success and help it grow should take priority over appealing to a shareholder’s desire for a quarterly dividend payout.
Somehow this year, Wal-Mart and Target have managed to please both sides of the fiscal fence as both are up in share price this year, 20% and 18%, respectively. Even in a difficult economy, where we are seeing people not only getting by paycheck-to-paycheck, but quite a number of folks getting by unemployment-check-to-unemployment-check, they seem to have what it takes to get consumers through their doors and their stock in portfolios.
kmet312 has no positions in the stocks mentioned above. The Motley Fool owns shares of SUPERVALU INC. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.