Coles Group Ltd (ASX: COL) has built itself a reputation as a solid ASX dividend share performer since its delisting from Wesfarmers Ltd (ASX: WES) almost two years ago.
Perhaps that's why in 2020 so far, the Coles share price is up more than 22%, compared with the broader S&P/ASX 200 Index (ASX: XJO) which is down around 9%.
But Coles' reputation for dividend income has been bolstered in recent weeks, and I think its star is on the rise compared to its arch-rival Woolworths Group Ltd (ASX: WOW).
Why Coles trumps Woolies as an ASX dividend share
Yesterday, Woolworths reported its full-year earnings for the 2020 financial year to the market. Within this report, Woolies told investors that net profits for the year were down 1.6% from FY19's levels. That prompted Woolies to deliver a total of 94 cents per share in dividends for FY20, down from the $1.02 per share Woolworths paid out in FY19. An annual dividend of 94 cents per share gives Woolworths a trailing dividend yield of 2.35% on current prices.
In contrast, when Coles reported its earnings for FY20 to the market last week, it delivered a profit of $951 million, which was a 7.1% increase n FY19's profit. That enabled Coles to announce a final dividend of 27.5 cents per share, which was a 14.6% increase on FY19's final payout and brings Coles' total dividend for FY20 to 57.5 cents per share. On current prices, that gives Coles a trailing dividend yield of 3.13%.
So we have one supermarket giant with falling profits in FY20 and a declining dividend. We have another with rising profits and a rising dividend. It doesn't require too much nuance to deem Coles a better ASX dividend share than Woolworths today, in my view.
Is the Coles share price a buy today?
Although it might beat out Woolies as a dividend share, that doesn't in itself mean the Coles share price is a buy right now. With a yield of 3.13% (or 4.47% grossed-up with Coles' full franking), Coles is certainly attractive for dividend income in 2020. Most ASX shares that income investors normally turn to are spending 2020 cutting their shareholder payouts. These include Westpac Banking Corp (ASX: WBC), Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD).
Therefore, I think Coles is a useful share to hold in an income-focused portfolio going forward. I wouldn't call the Coles share price cheap right now. But I understand the appeal of having a defensive, reliable income share like Coles in one's portfolio all the same. Thus, I think Coles is a worthwhile buy for any investor who relies on dividend income today. But for those who don't, I think there are better opportunities elsewhere.
