Is the Coles Group Ltd (ASX: COL) share price in the buy zone for ASX dividend income?
Ever since Coles' old parent company Wesfarmers Ltd (ASX: WES) announced it was spinning off the supermarket giant in 2018, investors have been licking their lips at the thought of the dividends Coles might pay.
After all, supermarkets are notoriously defensive businesses and Coles' arch-rival, the independently listed Woolworths Group Ltd (ASX: WOW), has had a reputation as a solid dividend payer for decades. As has Wesfarmers, for that matter.
With Coles reporting its first half-year profit result this morning, we finally have the answer.
Of course, this isn't the first dividend Coles has paid. The demerger of Coles from Wesfarmers resulted in both companies paying their investors 'special' dividends to account for the split.
And Coles has already paid an inaugural final dividend, which was delivered to shareholders in September last year. But today we have the announcement of Coles' first final dividend. And suddenly the roadmap of dividend income Coles can offer potential shareholders is finally clear.
What do Coles dividends look like in 2020?
So for Coles' first final dividend that was paid last year, shareholders received a 24 cents per share payout, which came fully franked. Coles this morning announced its interim dividend (to be paid on 27 March) will be 30 cents per share, fully franked.
On the current Coles share price ($16.70 at the time of writing), this equates to a 3.23% (4.61% grossed-up with full franking) dividend yield if combining the interim and final payouts – or a 3.59% (5.13% grossed-up) yield if we assume that the next interim dividend will come in at 30 cents per share (which there is no indication of, by the way).
An interesting fact to point out is that any investor who received their Coles shares from the Wesfarmers spin-off (or soon after) would be looking at a yield on cost of 4.84% (6.9% grossed-up), based on the initial floated price of $12.40 per share.
Is Coles a buy for income today?
Well, if you compare Coles' current trailing dividend yield, it certainly looks a lot better than Woolworths' current offering of 2.35%.
But still, the Coles yield is nothing too substantial when compared to other blue-chip ASX shares like Wesfarmers, Commonwealth Bank of Australia (ASX: CBA) or even a broader-market index fund like the Vanguard Australian Shares Index ETF (ASX: VAS).
If a robust and recession-resistant dividend is important for your portfolio, then I think Coles is indeed a good option. But if not, I think there are better yields elsewhere.
