How does the Woolworths (ASX:WOW) dividend compare to its sector?

How much is Woolworths’ dividend worth today?

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As a major S&P/ASX 200 Index (ASX: XJO) blue chip share, Woolworths Group Ltd (ASX: WOW) shares have long held a reputation for being an ASX 200 heavyweight when it comes to dividends. But how does this reputation hold up today?

At the time of writing, the Woolworths share price has lost 0.69% this Monday and is going for $41.70 a share. That’s still pretty close to the company’s all-time high of ~$42 that we saw last week. That figure takes into account the recent demerger of Endeavor Group Ltd (ASX: EDV) of course.

So at this current share price, Woolworths offers a headline dividend yield of 2.43%.

Where does this come from? Well, Woolworths’ past 2 dividends. The grocery giant paid out an interim dividend of 53 cents per share in March of this year. Before that, its previous dividend payment was the final dividend of 48 cents per share that the company paid out in September last year.

Putting those two payments against the current Woolworths share price, and we get a yield of 2.43%. That yield grosses-up to 3.47% if we include the value of Woolworths’ full franking credits.

So how dies this yield compare to Woolies’ peers?

Well, let’s take a look.

WOW, look at that dividend!

So Woolworths’ most obvious peers are its rivals in the grocery space – Coles Group Ltd (ASX: COL) and Metcash Ltd (ASX: MTS). Coles competes with Woolworths with its own chain of grocery supermarkets, while Metcash is another competitor with its network of IGA-branded stores across the country.

So at the current pricing, Coles currently offers a dividend yield of 3.24%., or 4.63% grossed-up with full franking.

That comes from Coles’ two most recent dividends: an interim payout of 33 cents per share in March 2021, and a final dividend of 28 cents per share that shareholders will see hit their bank accounts in September.

In Metcash’s case, this company offers a current yield of 4.22% on current pricing, or 6.03% grossed-up. That comes from Metcash’s past two dividends of 8 cents and 9.5 cents per share respectively.

Why is the Woolworths dividend so low?

So you might notice that the Woolworths dividend seems to be a lot lower than its peers in its sector. 2.43% against 3.24% or 4.22%. So what’s going on here?

Well, in these three companies’ case, it seems to be related to the earnings multiple investors are currently willing to pay. Take the price-to-earnings (P/E) ratio of Woolworths. It’s currently sitting at 37.12. Compare that to Coles’ current P/E ratio of 25.01 or Metcash’s 17.77.

This tells us that investors are currently willing to pay a higher share price relative to earnings for Woolworths than Coles or Metcash. That means that investors are also willing to accept a lower dividend yield for Woolworths shares as a result.

Should you invest $1,000 in Woolworths right now?

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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