Coles is the smaller business of the two. Coles has a market capitalisation of $25 billion, according to the ASX, while Woolworths has a market capitalisation of around $45.7 billion.
But it isn’t the size of the business that decides its dividend credentials.
The size of the dividend yield can be an important factor for investors focused on income.
Different analysts have different expectations for the business and what dividends it might pay over the next couple of years.
Morgans thinks that Coles is going to pay a grossed-up dividend yield of 4.7% in FY22. In FY23, Morgans thinks the company will then pay a grossed-up dividend yield of 4.9%.
Meantime, the broker has estimated a grossed-up dividend yield of 3.3% for Woolworths in FY22. Morgans also projects dividend growth from Woolworths in FY23, forecasting a grossed-up dividend yield of 3.9% in FY23.
Coles has a materially higher dividend yield than Woolworths, according to Morgans’ projections.
Recent dividend growth
The most recent result from both of these businesses was the FY22 half-year result.
There wasn’t any growth from either of them but Coles, again, did better on the dividend front.
Meanwhile, Woolworths declared an interim dividend of 39 cents per share. Woolworths said this was a 2.5% reduction after excluding Endeavour Group Ltd (ASX: EDV). Woolworths’ continuing operations (before significant items) EPS fell 5.1% to 64.3 cents.
In the most recent results, Coles provided shareholders with more dividend stability than Woolworths did.
Recent sales growth
One of the best ways that an ASX dividend share can most likely provide stability and growth of the dividend is by growing revenue and profit.
Both businesses recently released their third-quarter trading updates.
Total Woolworths continuing operations sales increased 9.7%, largely thanks to its business to business division. Coles’ total sales increased 3.9% to $9.3 billion.
In terms of sales growth, Woolworths did a little better than Coles.
Coles share price valuation
While the price-to-earnings (P/E ratio) isn’t everything, it can show which business is better value if they are similar businesses in terms of growth and/or quality.
According to Morgans, the Woolworths share price is valued at 32 times FY22’s estimated earnings and 27 times FY23’s estimated earnings.
Morgans’ estimates imply that the Coles share price is valued at 25 times FY22’s estimated earnings and 24 times FY23’s estimated earnings.
While Woolworths may have a claim to be a higher-quality business than Coles, I think the lower valuation makes up for it. The higher dividend yield and stability make me believe that Coles is the better ASX dividend share than Woolworths right now.