Is the Woolworths (ASX:WOW) share price a buy for dividends?

Could Woolworths be a good idea for dividends?

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At the current Woolworths Group Ltd (ASX: WOW) share price, could it be a good one to consider for dividends?

What did Woolworths do with the dividend in FY21?

The Woolworths board decided to increase the final dividend by 14.6% to 55 cents. That brought the full year dividend to $1.08 per share, an increase of 14.9%. That came after continuing operations earnings per share (EPS) increased 20.2% to 119.6 cents.

How big will the dividend be in FY22 and FY23?

There are a number of estimates for the Woolworths dividends over the next couple of years.

Macquarie Group Ltd (ASX: MQG) is one of the analysts that has estimated how big the dividend could be. In FY22, Macquarie is expecting Woolworths to pay an annual dividend of $0.93 per share, which would be a grossed-up dividend yield of 3.3%.

In FY23, Macquarie is expecting the dividend to be $1.03 per share, which would be a grossed-up dividend yield of 3.7%.

Commsec’s projections for the Woolworths dividend is for a little bit higher. In FY22, Commsec numbers suggest a 3.6% grossed-up dividend yield and in FY23 the forecast suggests a 3.75% grossed-up dividend yield.

How are Woolworths earnings going?

Woolworths reported in FY21 that continuing net profit increased 20.1% to $1.5 billion after continuing sales grew by 4.9% to $55.7 billion. FY21 continuing earnings before interest and tax (EBIT) before (significant items) rose 11.1% to $2.76 billion.

Breaking that down into the divisions, Australian food EBIT was up 9% to $2.43 billion, New Zealand food EBIT fell 6.4% to $336 million and Big W EBIT jumped 344.9% to $172 million.

Looking to the outlook, Woolworths plans to open 10 to 25 new full range supermarkets annually.

Australian food total sales for the first eight weeks have increased by 4.5%, cycling growth of 11.9% in the prior year. Woolworths attributed this growth to lockdowns across the country, particularly in NSW. More people are shopping online.

In New Zealand food, Woolworths said that two-year average growth momentum has continued to improve in FY22, with sales benefiting from recent lockdowns.

However, Big W sales were down 15.1% in the first eight weeks of FY22 due to the impact of lockdowns and cycling sales growth of 21.1%.

Group COVID costs have been $41 million in the first eight weeks, or 0.5% of sales.

Is the Woolworths share price a buy?

Macquarie currently rates the Woolworths share price as neutral, with a price target of $41.50.

However, Credit Suisse thinks that the Woolworths share price is a sell with a price target of $31.02. The broker doesn’t think that Woolworths is going to generate much growth over the next couple of years.

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

Before you consider Woolworths, you'll want to hear this.

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Motley Fool contributor Tristan Harrison 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 has no position in any of the stocks mentioned. 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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