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Why the Coles share price rose 10% in November

The Coles Group Ltd (ASX: COL) share price has continued its recent strong momentum in the month of November. COL shares started last month around the $15 mark, but have opened today (the first trading day of December) at $16.18 and have pushed higher still, going for $16.48 at the time of writing.

That puts the Coles share price gain for the month of November at a healthy 9.6%, which I’m sure COL shareholders won’t be too upset with.

Why have Coles shares climbed?

The bullish sentiment of the market as a whole hasn’t hurt Coles – the S&P/ASX200 (INDEXASX: XJO) did reach a new record high during the month, after all. But in this era of record low interest rates, I think the demand for ‘bond proxy’ stocks with stable, reliable earnings and dividends is also throwing fuel on the fire.

Coles (as a supermarket, first and foremost) is generally viewed as a recession-proof stock due to our ever-present need to buy food and the other household essentials Coles sells. Although Coles’ dividend isn’t the highest around, it still offers a forward yield of roughly 3.5% (or 5% including franking).

If an income investor has a choice between a term deposit or COL shares, I think it’s obvious which one would put out better income returns.

Where are Coles shares heading next?

Coles has recently delivered some solid numbers for the October quarter, in which it reported sales growth of 1.8% and strong interest in its online platform. If Coles can keep its Smarter Selling cost-cutting plan on track, I expect it will have plenty of room for dividend growth in the future.

It’s worth noting that even on today’s prices, Coles trades at approximately 20 times its earnings, where as its arch-rival Woolworths Group Ltd (ASX: WOW) is trading on 35 times earnings. Thus, I think if Coles continues to tick boxes and deliver dividend growth, there’s plenty of room for upside yet for its share price.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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