The Coles Group Ltd (ASX: COL) dividend has grown each year since 2019, despite there being only a handful of S&P/ASX 200 Index (ASX: XJO) shares that managed to increase dividends through the COVID-19 pandemic.
Interestingly, according to analyst projections, Coles is expected to keep growing its dividend in the next few years.
How large could the payment be in FY23?
According to Commsec, Coles could pay an annual dividend per share of 66 cents in FY23.
The ASX 200 share already paid an annual dividend per share of 36 cents earlier this year. That suggests the FY23 final dividend could be 30 cents per share – this would be the same payment as the final dividend of FY22.
However, I have a sneaking suspicion that Coles is going to pay a final dividend of more than 30 cents per share because it has grown nearly all of its half-year dividends since 2019. Plus, strong sales growth achieved in the third quarter of FY23 could support stronger profit for the FY23 second half, enabling a more rewarding payout.
But, assuming Coles does pay an annual dividend per share of 66 cents, it would represent an increase of around 4.75% year over year. The FY23 annual payment would equate to a grossed-up dividend yield of 5.2%.
As we can see on the chart below, the Coles share price is close to the value it began FY23 at. So, the dividend is an important factor this financial year for achieving a positive return.
What could the Coles dividend be in FY24?
The 2023 financial year is not likely to be the end of Coles dividends. Indeed, the current Commsec estimate suggests the ASX 200 stock could pay another increased dividend in the upcoming financial year.
The projection is that Coles will pay an annual dividend per share of 67.5 cents per share. This would be an increase of 2.3%. If that payout forecast ends up being correct, it would be a grossed-up dividend yield of 5.3%.
The profit forecast on Commsec is that Coles could generate 82.4 cents of earnings per share (EPS). This implies a dividend payout ratio of around 82%, indicating there is adequate room for the higher shareholder payout and enough profit left to re-invest and improve the business (such as its new automated warehouses).
How are sales going?
Investors get an insight into the company's performance every three months. Recently, we saw the FY23 third-quarter results for the 12 weeks to 26 March 2023.
Continuing operations sales grew 6.6% year over year to $9.4 billion, while supermarket sales went up 7% to $8.6 billion. This was boosted by supermarket inflation of 6.2%, indicating the revenue increase came from higher prices, rather than loads of new customers.
Turning to early performance in the fourth quarter of FY23, supermarket sales were up, with volumes "remaining positively supported" by "solid" Easter trading.
In its outlook statement, Coles was positive about the future and said:
With the largest own brand portfolio in Australia, we remain confident that we are well positioned to navigate the current macro environment and deliver trusted value for our customers at a time when many households are experiencing increasing financial pressure. We also expect that improvements in availability, higher immigration and further increases in at-home consumption will continue to positively support future growth.
Coles share price snapshot
Since the start of 2023, the supermarket business has risen 10%, though this only returned the business valuation to where it was in 2022. Remember, if earnings rise over time then this could be supportive for the Coles share price in the coming months and years.
