Could Woolworths Group Ltd (ASX: WOW) be considered as a safe ASX dividend share option?
Well let’s consider two different parts of the question.
Is it safe?
Different people may have different thoughts about what ‘safe’ means.
For most people, supermarkets may be some of the safest blue chips you could want to buy. They’re not like banks with huge balance sheets (which can be very risky if there are painful bad debts).
Everyone needs to eat food. With COVID-19 impacts, there has been even more food bought through a supermarket compared to normal with closures and restrictions of things like cafes and restaurants.
Woolworths is very unlikely to see a double digit drop in sales in any given period (aside from comparable periods against the COVID-19 panic buying). So on the revenue side, I think Woolworths shares can be classified as a pretty safe business unless/until food buying dramatically changes.
However, in terms of long term growth I’m not sure if it can grow a lot. The main two elements of growth are population growth (low) and product price inflation (also low). Woolworths has extracted a lot of value where it can. What else can it do other than slowly growing the store network and margins? Continued diversification could be an option somehow.
Is Woolworths an ASX dividend share?
In terms of the current yield, it’s a decent option. It has a fully franked dividend yield of 2.5%. Certainly not the highest you can find.
Before Aldi became a major player, Woolworths was one of the best and most consistent dividends shares on the ASX. The FY20 dividend was cut by 7.8%, though the FY19 dividend was based on earnings that included its petrol business which was sold in April 2020 and benefited from a 53rd week in its financial year.
I think that shows you can’t expect the Woolworths dividend to go up every single year. However, the FY21 dividend could go higher after a strong first quarter in FY21 with total group sales going up 12.3%.
But there are many other ASX dividend shares I’d rather buy first such as Brickworks Limited (ASX: BKW), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), APA Group (ASX: APA) and even Wesfarmers Ltd (ASX: WES).
