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Down 10% in 2 months. Are Coles shares a buy today?

The Coles Group Ltd (ASX: COL) share price is down around 10% over the past two months.

Coles shares are today trading at $15.23 at the time of writing. Seeing as Coles shares were over $17 back in March, is this a buying opportunity for this ASX consumer staples giant?

Why are Coles shares falling?

Since mid-March, the broader S&P/ASX 200 Index (ASX: XJO) has surged over 22% in value. In this period, Coles’ share price has gone backwards. So what’s going on?

Well, Coles shares were one of the few stocks that investors were flocking to during March. Investors were evidently drawn to the company’s defensive qualities and were responding to the panic buying of essentials we saw across the country at the time.

Today, the situation is remarkably different.

The initial bump in revenue Coles experienced during the first quarter of 2020 has likely evaporated. We know this because just today, the Australian Bureau of Statistics released its April retail data, which found food retail spending fell by 17.1% in April, compared with March.

Meanwhile, most of the additional spending Coles has had to implement recently on safety equipment and extra store sanitisation looks like it’s here to stay for at least the remainder of 2020. Coles also employed a massive number of new staff over the last few months, which is another cost the company has to absorb.

Are Coles shares a buy today?

Coles shares certainly look a lot more attractive than they did two months ago, but I’m still not convinced they’re a screaming bargain on today’s prices. This is a company that I don’t think will see significant growth over the next few years. Its ‘Smarter Selling’ cost-cutting program has also had a major wrench thrown into it by the coronavirus.

In saying that, dividend income is hard to find on the ASX these days and so I think Coles shares have a lot of merit from an income investing perspective. On current prices, Coles shares are offering a trailing dividend yield of 2.76%, or 3.94% grossed-up with full franking.

That’s a lot better than a term deposit or a non-existent dividend from Westpac Banking Corp (ASX: WBC).

Foolish Takeaway

Coles is a good business with strong fundamentals and many attractive defensive qualities, which it certainly showed off during the market panic we saw in March with aplomb. I wouldn’t buy this company for its future growth prospects, but I think Coles shares remain a sound choice for reliable ASX dividend income today.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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.