The Coles Group Ltd (ASX: COL) share price hasn’t had a fabulous month and a half. Since making a fresh new all-time high of $19.26 on 14 August, Coles shares have slid to the $17.00 the company is asking at close of trade today. That’s a six-week slide of more than 10%.
But for ASX dividend investors, cheaper share prices mean higher dividend yields. So is this a buying opportunity for Coles shares today?
Coles shares’ crazy year
It’s certainly been a crazy year for the Coles share price. Just look at this visual representation:
We saw a big dip at the onset of the coronavirus pandemic, followed by some frenzied buying pressure when investors realised Coles was one of the only businesses experiencing booming sales amid the lockdowns. Then investors cooled off a bit when the broader market began to recover before another rally from June to mid-August.
The dip over the past 6 weeks has reversed some of these gains, but could this also indicate a buying opportunity?
What are Coles shares offering today?
On current prices, Coles shares are trading at a price-to-earnings (P/E) ratio of 23.28 and a trailing dividend yield of 3.37%, or 4.81% grossed-up with Coles’ full franking. That compares with the broader S&P/ASX 200 Index (ASX: XJO)’s current average P/E ratio of 17.81 and trailing dividend yield of 3.41%. That tells us that the market is placing a premium on Coles shares today. But is this justified? Well, I think Coles shares have a lot going for them today, especially if you’re a dividend investor.
In its August full-year earnings report for the 2020 financial year, Coles increased its final dividend to 27.5 cents per share, fully franked. That’s a 14.6% improvement to FY19’s final dividend and brings the total dividend from Coles in FY20 to 57.5 cents per share.
A 3.37% dividend yield isn’t the largest offering on the ASX today. In contrast, Fortescue Metals Group Ltd (ASX: FMG) for example, is offering investors a trialling yield of 10.77% right now.
Even so, a company like Coles offers stability and defensiveness that few other ASX companies (especially Fortescue) can offer. Groceries and alcohol are household essentials for almost everyone (the former more than the latter) and Coles is one of the few places Aussies go to buy them.
This paradigm is consistent no matter the economic conditions or the impact of the coronavirus pandemic (as we saw in March and April). As such, I think Coles is a valuable share for any ASX dividend investor to have in their portfolio, and I think today’s pricing isn’t a bad offer at all.
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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.
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