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

Is it time to buy this supermarket share?

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

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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.

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