Roundy’s (NSDQ: RNDY) is a leading grocer in the Midwest with nearly $4 billion in sales and more than 18,000 employees. Founded in Milwaukee in 1872, Roundy’s operates 159 retail grocery stores and 98 pharmacies under the Pick ‘n Save, Rainbow, Copps, Metro Market and Mariano’s Fresh Market retail banners in Wisconsin, Minnesota and Illinois.

The company launched an initial public offering (IPO) in February 2012 and has a current market capitalization of $496 million. Roundy’s generated $150 million of operating income on $3.8 billion of revenue in 2011. RNDY began trading on February 8, 2012 at an initial stock price of $8.50. Currently, RNDY is trading at $10.88, an increase of 28 percent from its IPO price.

For income investors, what’s truly exciting about RNDY is that it will pay a dividend greater than many dividend giants. The company’s Board of Directors has approved the payment of a quarterly cash dividend of $0.23 per share to be paid on June 5, 2012, to stockholders of record as of the close of business on May 29, 2012.

RNDY pays a dividend yield of 8.9 percent. In comparison, tobacco giant Altria Group (NYSE: MO) pays a dividend yield of 5.5 percent and long-time dividend champion AT&T (NYSE: T) pays a dividend yield of 5.23 percent. Did I mention that Roundy’s is a grocery store chain?

Now’s a great time to buy Roundy’s stock. Shares took a price hit following the company’s recent announcement of first-quarter 2012 earnings on May 10, as same store sales disappointed investors. Roundy’s reported first-quarter earnings of $0.28 per share, excluding one-time items, versus the Capital IQ consensus of $0.25. Revenues were $938.2 million, versus the analysts’ estimate of $930.51 million. For fiscal year 2012, the company expects earnings per share (EPS) of $1.30 to $1.42, excluding special items, in line with the consensus of $1.42 EPS. The company expects revenue growth of 2.5 percent to 3.5 percent.

The Big Picture

Guess who has bought into RNDY? Greenlight Capital, operated by David Einhorn, went long in a $5.6 million position in its recent portfolio disclosure. Einhorn is looking at the big picture and realizes that Roundy’s has a viable growth strategy and pays a great dividend yield. The company plans an expansion into its adjacent Chicago market, an underappreciated opportunity.

Chicago is the third-largest grocery store market in the United States, with struggling market leaders in Supervalu and Safeway. Roundy’s is rolling out a differentiated format in Chicago, focused on high-quality fresh products at extremely competitive prices.

Roundy’s management team has a history of success in the area and recently negotiated an advantageous pay package with the local union—no small feat in heavily unionized Chicago. The company operates only five stores in the Chicago area, but plans to open four to five additional stores every year.

Roundy’s is a small cap stock to watch. Those who own it will get paid to wait, as growth boosts earnings.

Greg Pugh, an income-investing expert, publishes a newsletter called Investing for Monthly Income at http://getrichinvestments.com