Looking for no-brainer buys on the S&P/ASX 300 Index (ASX: XKO) is a hard ask. There are hundreds of dividend stocks on the ASX. But very few of those could be called no-brainer buys.
But I think Coles Group Ltd (ASX: COL) could be one such no-brainer buy for investors seeking passive income from dividends.
Coles is an ASX 300 stock that needs little introduction. Chances are that most readers would have shopped there at least a few times in their lives, and many on a weekly basis. In Coles, investors are buying the second-largest grocery and supermarket chain in Australia, with interests in other businesses like Vintage Cellars and Liquorland.
So what might make Coles shares a no-brainer buy for dividend investors today?
Why Coles shares are a no-brainer buy for income
Well, there are two primary reasons. The first is Coles' consumer staples nature. This is a business that provides products that we all need to live. There's almost nothing that will stop customers from turning up to Coles to purchase their week's food, drinks, and household essentials. That makes Coles remarkably resilient to recessions, downturns, pandemics, and inflation – and thus a highly defensive ASX share.
This resilient earnings base means that Coles won't be facing the same kind of pressure to cut its dividend payments as most other ASX shares if there is an economic downturn. This is exemplified by Coles' ability to raise its dividends in 2020. That was a year that forced many other ASX dividend shares to cut their payouts because of the pandemic.
This ASX 300 stock has a great dividend track record
That brings us to the second reason Coles could be a no-brainer buy for dividend income — its dividends themselves. Since listing on the ASX in its own right in 2018, Coles has built a strong dividend track record. It has increased its fully franked annual dividends every single year since then. That's a boast that its arch-rival Woolworths Group Ltd (ASX: WOW) cannot make.
Its most recent shareholder payment – the interim dividend of 26 cents per share – represented a healthy rise over last year's interim payment of 33 cents.
Today, Coles offers investors a healthy trailing dividend yield of 3.68%, which grosses-up to 5.26% with that full franking. That's a lot more appealing than Woolworths' current yield of 2.57%.
So with Coles, we have a highly defensive ASX 300 stock, offering a strong track record of paying rising, fully-franked dividends, and with a decent starting yield at present. It's for these reasons that I think Coles is about as close to a no-brainer buy for an income investor today as you can get on the ASX boards.
