Here's why Coles shares would make a great first ASX investment

Coles has two factors that lead me to think of it as a great starter stock.

| More on:
Happy couple doing grocery shopping together.

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

Key points

  • Coles is one of the most recognisable names on the ASX 200, but it also makes for a great first investment idea
  • The company has a highly defensive earnings base, which provides inherent protection against recessions and inflation
  • Coles also has an exceptional dividend track record and has become a highly reliable passive income provider

Coles Group Ltd (ASX: COL) shares have had a fairly encouraging year so far in 2023. Since January, the Coles share price has risen by a healthy 11.1%, well outperforming the S&P/ASX 200 Index (ASX: XJO), which is up by 5% over the same period. 

This continues a pattern that Coles shares have displayed ever since the ASX 200 consumer staples share first floated on the ASX in its own right back in late 2018. Since that time, Coles shares have risen from under $13 to the $18.27 we see today:

The Coles share price's impressive performance over the past five years is one of the reasons that I think Coles is the perfect ASX 200 share for a first investment.

Here are two more reasons.

Why I think Coles is a perfect ASX starter share

A safe earnings base

No ASX share on the share market is truly 'safe'. Even if a company's profits and earnings survive and thrive during a recession or stock market crash, there is no guarantee that its share price will hold its value.

Saying that, if a company does manage to avoid a profit slump, then its share price will arguably have a better chance of recovering quickly compared to a more cyclical share.

It's my belief that Coles falls into this bucket. Here, we have a company that sells food, drinks and other household essentials. We're all going to need to continue buying these products regularly. As such, Coles is a company that could be described as a defensive share.

That defensiveness extends to inflation too, with Coles arguably one of the most inflation-resistant companies on the ASX. This all bodes well for a beginner investor, in my view.

Coles shares pay great dividends

Another reason new investors should consider Coles shares as a first investment is the company's dividend history. Over the near-five years of its standalone ASX life, Coles has built up quite an impressive dividend track record. The company has increased its annual dividends every single year since 2019.

That year saw Coles fork out a total of 35.5 cents per share in fully-franked dividends. By last year, this annual total had reached 63 cents per share, fully franked. Indeed, Coles' first dividend of 2023, the interim dividend of 36 cents per share, was another healthy rise over 2022's corresponding payment of 33 cents.

Today, these dividend payments give Coles shares a decent trailing (and fully-franked) yield of 3.63%.

These consistent rises prove that Coles is able to slowly but steadily grow its earning base, and reward shareholders whilst doing so. Strong and reliable passive income is a great thing for a beginner investor in my view, as it reinforces the benefits of long-term compounding.

Motley Fool contributor Sebastian Bowen 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 has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Consumer Staples & Discretionary Shares

Man holding out Australian dollar notes, symbolising dividends.
Consumer Staples & Discretionary Shares

Everything you need to know about the Woolworths dividend

Woolworths will pay out its largest interim dividend in three years in 2024.

Read more »

A man looks a little perplexed as he holds his hand to his head as if thinking about something as he stands in the aisle of a supermarket.
Consumer Staples & Discretionary Shares

Woolworths share price dives 7% following Banducci bombshell

ASX 200 investors are pressuring the Woolworths share price today amid the shock departure of CEO Brad Banducci.

Read more »

Two parents and two children happily eat pizza in their kitchen as a top broker predicts a 46% upside for the Domino's share price
Earnings Results

Domino's share price charges higher on improving outlook

Here's how this struggling pizza chain operator performed during the first half.

Read more »

two men in suits with their backs to the camera walk off into a sunset on a city street with one placing his hand on his companion's shoulder as if in a fond gesture.
Earnings Results

Woolworths shares on watch after CEO exit and $781 million loss

Brad Banducci retires as New Zealand business devastates the supermarket's bottom line.

Read more »

Money Wealth Coin on Shopping Cart and grow up as creative investment ideas.
Dividend Investing

If I invest $10,000 in Woolworths shares, how much dividend income will I receive in 2024?

The supermarket giant is due to report its 1H FY24 results and interim dividend tomorrow.

Read more »

A man has a surprised and relieved expression on his face. as he raises his hands up to his face in response to the high fluctuations in the Galileo share price today
Earnings Results

Guess which ASX 200 stock is surging 13% after solid half-year result

This stock is charging higher after investors responded positively to its results release.

Read more »

Young man sitting at a table in front of a row of pokie machines staring intently at a laptop. looking at the Crown Resorts share price
52-Week Lows

Star Entertainment share price crashes 26% upon return to trade

This is a new 52-week low.

Read more »

jumbo share price
Consumer Staples & Discretionary Shares

A fund manager is betting on this ASX 300 stock. Is it a buy?

WAM has picked out a compelling stock to buy.

Read more »