The Coles Group Ltd (ASX: COL) share price is plummeting today.
Coles shares closed at $16.71 yesterday but have opened at $16.06 this morning and are going for $16.08 at the time of writing – a drop of 3.97%.
It was only last week that Coles was printing new all-time highs – topping out at $17.25. So, this morning's moves are a substantial turnaround in fortunes for the shares of Australia's second-largest supermarket grocery chain.
Why are Coles shares going down, down?
Coles has only been on the ASX boards in its own right since November 2018 when it was spun-out of former parent company Wesfarmers Ltd (ASX: WES) at around $12.40 a share. At the time, Wesfarmers let go of 85% of Coles to the public market, but kept a 15% stake in Coles on its books.
Yesterday after market close, the ASX received notice that Wesfarmers has now sold some of this remaining 15% stake – reducing its ownership in Coles from 15% to 10.1% going forward. This is estimated to net Wesfarmers around $1.05 billion as the company advised its average selling price is $16.08 per share (which is the level Coles shares are hovering at today).
Since the Wesfarmers stake remains above 10%, Wesfarmers will retain the right to nominate a director to the Coles board, as per the original spin-off agreement with Coles.
Such a massive dump of shares on the market is always going to add selling pressure to the Coles share price from the simple laws of supply and demand if nothing else.
In addition, its worth noting that Coles goes ex-dividend next week on February 28, so we are likely to expect a further drop in Coles shares after that as well.
Is this a buying opportunity?
Well, Coles is certainly looking more attractive that it was last week. On the current prices, the company has a price-to-earnings ratio of 19.88 – which is far lower than its chief competitor Woolworths Group Ltd (ASX: WOW) at 38 right now.
This week, Coles also announced that its interim dividend will come in at 30 cents per share. This gives Coles a trailing, fully franked yield of 3.36% (4.8% grossed-up) on current prices, and a forward yield of 3.73% (5.33% grossed-up) if Coles decides to keep a 30 cents per share payout for the final dividend late this year (which the company hasn't shed any light on).
If you've been eyeing off Coles as a solid dividend share, today might represent a good entry price. However, I still think there are better income opportunities elsewhere.
