As you know, I think that dividend investing does not have to be hard. If all you did was simply look around at the products in your home or where you shop on a regular basis, you would have found the basis for an investment thesis. With that being said, I’d like to take a look at the supermarket and grocery store industry and see how some of these companies stack up from a dividend perspective. After all, everyone of us shops at some point in a week or month at one of the major supermarket chains.

By any measure the supermarket/grocery store industry is huge. According to FMI research that monitors the supermarket industry, annual sales for 2013 topped $620 billion. This sector alone employs well over 3 million people and has a large real estate footprint with over 37,000 stores. No wonder some of the hottest names in this sector continue to make headlines as their growth and dividend payments continue to impress customers and investors alike. Let’s examine some of the larger more well known supermarket stocks.

First up, Safeway Inc. (SWY). Operating under their namesake as well as Vons (recently sold this summer), Pavilions, Randalls, Tom Thumb, and Carrs Quality Centers, SWY also sells a number of consumer products under the labels Rancher’s Reserve, Lucerne, Eating Right, mom to mom, Bright Green, Open Nature, Refreshe among many others. Currently yielding a decent 2.70% with a relatively high payout ratio of 83.6% based on current cash flow, SWY has been paying dividends for over a decade and has a five year annualized dividend growth rate of 19.5%. For those looking for some fast dividend growth this might be a stock to consider, though the high payout ratio might inhibit future high dividend increases. According to Morningstar the current PE of SWY stands at 76.3 highlighting the fact that share price has definitely run ahead of earnings. This makes SWY quite pricey relative to industry peers and the S&P.

Next on our shopping list is The Kroger Co. (KR). Operating under their namesake as well as Dillons, Food 4 Less, Fred Meyer, Fry’s, Harris Teeter, QFC, Ralphs, Smith’s and more, KR currently yields a relatively low 1.30% with an equally low payout ratio of just 20.1% making this dividend quite safe based on current cash flow. KR has been raising its dividend for the past five years and has an annualized dividend growth rate of 12.26%. On a valuation basis KR has a PE of 17.98 putting it in line with the S&P but well above industry peers. Forward PE looks slightly better at 16.0.

Moving down the aisle we come to the very popular supermarket chain Whole Foods Market, Inc. (WFM). Known for its large selection of fresh and organic produce and consumer goods, WFM currently yields a low 1.30% with a moderately low payout ratio of 31.4% making this dividend safe based on current cash flow. Though not a high dividend raiser like SWY or KR, Whole Foods Market still sports a five year annualized dividend growth rate of 5.92%. Not too bad considering the growth and capital appreciation the company has been experiencing the last decade. Like the two companies mentioned before, WFM on a PE basis alone, looks a bit expensive. The current PE of WFM is 26.11 which makes it relatively more expensive than the market and industry peers. Sometimes, you have to pay up for continued growth as WFM still has room to increase its footprint.

Finally, let’s take a look at a smaller market chain named Casey’s General Stores, Inc. (CASY). For those who are not familiar with this chain, CASY operates convenience stores primarily Iowa, Missouri, and Illinois. Though not a traditional big box supermarket it does sell many of the same consumer goods found in those types of stores such as beverages and tobacco products, health and beauty aids as well as an assortment of prepared foods such as pizzas, donuts and sandwiches. CASY currently yields a relatively low 1.20% with a low payout ratio of 22.5% which leaves plenty of room for dividend payments and future increases based on current cash flow. It has been raising its dividend for the past eleven years and has an impressive five year annualized dividend growth rate of 19.77%. On a valuation basis CASY has a current PE of 20.51 which is not too bad when comparing to some of the other stocks mentioned above. For those willing to invest in slightly smaller regional chains CASY might be an interesting pick as it continues to grow its dividend.

Do supermarket dividends belong in a dividend growth investment portfolio? Are any of the names mentioned above in your portfolio? Please let me know below.