Although the retail sector is having a tough time of late, I believe a little exposure to it could be a good thing for a portfolio.
But deciding which retail shares to buy is not easy given the vast number of options to choose from. Are these retail giants in the buy zone?
Coles Group Ltd (ASX: COL)
With the Coles share price trading within sight of its 52-week low, I think now could be an opportune time to pick up the supermarket giant's shares if you're prepared to make a long-term and patient investment. I believe Coles' strong market position and focus on automation will put it in a position to grow its earnings and dividend at a steady rate over the next decade. Another bonus is that with management aiming to pay out 80% and 90% of its earnings as dividends, I estimate that its shares currently provide a 5.1% FY 2020 dividend yield.
Wesfarmers Ltd (ASX: WES)
I also think that this conglomerate would be a good option for investors. I believe Wesfarmers is a stronger company after its portfolio restructure and is well-positioned for earnings and dividend growth over the coming years. Especially if it uses its balance sheet strength to acquire some earnings accretive businesses in the near term. As with Coles, Wesfarmers could also be a good option for income investors due to its shares offering an estimated forward fully franked 4.5% dividend yield.
Woolworths Group Ltd (ASX: WOW)
Whilst I'm a big fan of Woolworths and the numerous brands in its portfolio, I'm not a buyer of its shares at present due to the premium they trade at. The conglomerate's shares are currently changing hands at 23x estimated full year earnings, which I think is expensive given its current growth profile. For example, in the first half of FY 2019 Woolworths posted just a 2.3% increase in sales to $30,587 million and a 2.1% increase in net profit after tax to $920 million. It also warned that trading conditions are expected to be tough for its key Australian Food business in the second half.
