Could dividends be a good reason to consider the Coles Group Limited (ASX: COL) share price?
The supermarket business hasn’t been separated from Wesfarmers Ltd (ASX: WES) for too long, but it is already building a pretty impressive record as a dividend payer.
Coles dividends
In FY19 it paid a dividend of $0.355 per share.
Next, in FY20 it paid a full year dividend of $0.575 per share.
Then, in FY21, Coles paid a total dividend of $0.61 per share. That represented an increase of around 6% in FY21. However, the Coles share price has been falling since reporting season.
As a dividend investment, there are several things I’m looking for. With Coles, there are two things in-particular.
One is an annual dividend increase that is at least the rate of inflation – hopefully healthily faster than inflation. An increase of 6% is a very solid increase and makes up for the higher inflation we’re seeing at the moment.
Another thing I look for with ASX dividend shares is the dividend yield on offer today. Using that FY21 dividend, it has a fully franked dividend yield of 3.6%. Including the franking credits, that turns into a 5.1% yield. In this era of mega-low interest rates, I think that’s a solid yield.
Should it be considered for income?
On the dividends alone, it seems like a pretty decent pick.
The reliability of those dividends seems pretty good as well. Food (and drink) retailing is very defensive. We all need to eat, right?
The Coles share price has fallen by almost 10% since the recent peak near the end of August. A lower share price is sometimes a more attractive time to consider a business. I think it could be a better buy than Woolworths Group Ltd (ASX: WOW) due to the valuation.
I like the plans that Coles is undertaking to make itself a more efficient, more sustainable and more profitable business in the coming years.
It’s one of those businesses that could be a slow and steady performer.
However, I wouldn’t expect a lot of capital growth over the long-term. It’s already such a big business, so adding another supermarket to its network is a smaller increase in percentage terms than it used to be. There are other ASX dividend shares I’m looking at.
