Are Woolworths shares worth buying for dividends right now?

How does the supermarket giant's dividends compare to its major competitor's?

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Key points
  • ASX 200 dividend-paying supermarket operator Woolworths has struggled on the market this year, with its share price having tumbled close to 14% year to date
  • Brokers are divided on whether the stock's tumble makes it a buy
  • Meanwhile, rival Coles is offering shareholders a notably larger dividend yield right now

The share price of dividend-paying supermarket operator Woolworths Group Ltd (ASX: WOW) has underperformed the broader S&P/ASX 200 Index (ASX: XJO) so far this year.

The stock has dumped around 13% since the start of 2022, while the ASX 200 has slumped 8%. Right now, the Woolworths share price is trading at $33.48.

Could its recent downturn make Woolworths shares a dividend buy? Let's see what experts think.

Woman thinking in a supermarket.

Image source: Getty Images

Are Woolworths shares a dividend buy?

Well, that depends on who you ask.

Top brokers Goldman Sachs and Citi are both bullish on the stock, despite being disappointed by its recent first-quarter earnings.

Woolworths posted a 1.8% increase in group sales for the three months ended 30 September, coming in at around $16.4 billion.

Its key Australian and New Zealand food businesses underperformed despite inflationary effects. Though, their slump was offset by growth in the company's Big W and business-to-business sectors.

Goldman Sachs commented:

Despite a noisy and softer [first quarter], we remain confident that [Woolworths] is the superior operator within [Australian] supermarkets.

Both Goldman Sachs and Citi trimmed their price targets for Woolworths shares on the back of the update, reducing them to $41.70 and $39.50 respectively, my Fool colleague James reports. Though, that still represents a potential upside of 18% to 24%.

Comparatively, Morgans is decidedly more bearish.

The broker dropped its price target on the stock to $34.10 and retained its hold rating on the back of the supermarket giant's recent release. It said:

[W]e continue to see the stock as fully valued and continue to prefer Coles Group Ltd (ASX: COL) in the Staples sector.

Speaking of Coles, its dividends far surpass those offered by its larger peer. It's currently trading with a dividend yield of 3.8%, having handed investors 63 cents per share in dividends in financial year 2022.

That's superior to the 2.7% yield currently on offer from Woolworths shares. It paid out 92 cents per share in dividends last financial year.

Thus, a dividend-focused investor might prefer Coles shares over Woolworths right now.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has positions in 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 Scott Phillips.

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