Is Coles (ASX:COL) a must-buy dividend share for income investors?

Is it time to buy this supermarket share?

| More on:
A happy, smiling woman rides on the back of a trolley down the aisles of a supermarket.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Luckily for income investors, the Australian share market is home to a good number of quality dividend shares. One of those is Coles Group Ltd (ASX: COL).

Why buy Coles’ shares?

Since GJ Coles opened his first store in Collingwood, Victoria in 1914, Coles has gone on to become one of Australia’s most recognisable brands and one of the big two players in the supermarket industry with a network of over 800 locations across the country. In addition to this, Coles has an equally large liquor store and express store network.

This gives the company extraordinarily defensive qualities, which have been on display for all to see during the pandemic. For example, in FY 2021, Coles delivered a 3.1% increase in sales to $38,562 million and a 7.5% jump in net profit after tax to $1,005 million despite cycling panic buying in parts of FY 2020.

The good news is that the company still sees plenty of room to grow its footprint further and also its online business. Combined with its focus on automation, this is expected to underpin solid earnings and dividend growth over the 2020s.

In the meantime, the team at Morgans expect Coles to pay fully franked dividends of 61 cents per share in FY 2022 and then 62 cents per share in FY 2023. Based on the current Coles share price of $17.95, this represents yields of ~3.4% for both years.

Another positive is that the broker sees decent upside in the Coles share price at the current level.

Morgans currently has an add rating and price target of $19.80. This implies a potential return of 10.3% over the next 12 months, which stretches to almost 14% if you include dividends.

All in all, this could make the Coles share price a decent option for income investors next week.

Motley Fool contributor James Mickleboro 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.

More on Dividend Investing

A woman holds out a handful of Australian dollars.
Dividend Investing

Everything you need to know about the latest Transurban dividend

How big is Transurban's new dividend yield?

Read more »

Happy smiling young woman drinking red wine whilst standing amongst the grapevines in a vineyard as the Treasury Wines share price rises today
Dividend Investing

Treasury Wine share price defies market slump. Could it be the dividend boost?

The winemaker just lifted its dividend. Here are the details.

Read more »

A man wearing a blue jumper and a hat looks at his laptop with a distressed and fearful look on his face as he reads about the Core Lithium share price falling 30% in a month
Dividend Investing

Here’s why the IAG share price is slumping today

The insurer's shares are treading lower for a reason today...

Read more »

Man in yellow hard hat looks through binoculars as man in white hard hat stands behind him and points.
Dividend Investing

Here’s the BHP dividend forecast through to 2026

Where is the BHP dividend heading in the coming years?

Read more »

A businesswoman weighs up the stack of cash she receives, with the pile in one hand significantly more than the other hand.
Dividend Investing

These top ASX dividend shares have been tipped as buys by analysts

These two dividend shares have been rated as buys by brokers...

Read more »

recreational fisherman holding fishing rod and hands apart indicating it was this big with smile on his face
ETFs

Here’s how much the Vanguard Australian Shares Index ETF (VAS) has paid in dividends over the past 5 years

How much dividend income does the VAS ETF throw off exactly?

Read more »

Doctor looking serious with arms crossed
Dividend Investing

How much have Medibank shares paid in dividends over the past 5 years?

Have Medibank shares really offered a 51% return on investment over the last five years?

Read more »

Two happy scientists analysing test results.
Dividend Investing

Everything you need to know about the latest CSL dividend

Own CSL shares? Here's the details regarding its latest dividend.

Read more »