Coles Group Ltd (ASX: COL) shares are facing selling pressure today, down 2% in early trade.
While the wider market movements can have an influence on a share price, today's negative movement can be explained by an event relating to the Coles dividend.
Namely, Coles shares have gone ex-dividend today.
What does that mean?
The board of a company can choose to pay its shareholders dividends when the business has made an accounting profit and wants to share (some of) that with its investors. In FY23, Coles' continuing operations generated earnings per share (EPS) of 78.1 cents.
The board selects a cutoff date known as the ex-dividend date to decide which shareholders are eligible for the dividend. This is because the shareholder list of a large business changes every day, and the number of shares owned changes too.
How does ex-dividend impact the share price?
Coles shares going ex-dividend means any investors who decide to buy shares today won't be entitled to the upcoming Coles FY23 final dividend of 30 cents per share. Using yesterday's closing Coles share price, that represented a grossed-up dividend yield of 2.6%, or 1.82% excluding the franking credits.
Why would this cause the Coles share price to decline? It's because the value on offer for buyers yesterday was higher than today. Yesterday, people were buying a small part of the Coles business and gaining entitlement to a 30 cents per share payment. Today, investors are only getting access to the Coles business. They will have to wait another six months for the next potential dividend payment.
Perhaps unsurprisingly, the Coles share price has fallen roughly the same amount as the dividend amount.
When will the Coles dividend be paid?
The supermarket giant plans to pay the 30 cents per share dividend on 27 September 2023, so investors only need to wait approximately four weeks for the money to hit their bank accounts.
Shareholders have the option to take part in the company's dividend re-investment plan (DRP). That means people can receive new Coles shares rather than cash. Shareholders have until 5pm on 5 September 2023 to elect to take part in the DRP.
How big could the FY24 payments be?
Coles has grown its annual dividend per share each year since FY19, but the current forecast on Commsec is that this growth run is going to end in FY24.
In FY23, it grew its annual dividend per share by 4.8% to 66 cents. The final dividend was maintained at 30 cents per share.
The projection on Commsec is that Coles' FY24 earnings per share will decrease to 74.8 cents, leading to a possible reduction of the total dividend by 7.6% to 61 cents per share.
A forecast of reduction doesn't mean it's definitely going to happen. However, the company is facing operating cost inflation, delays of completion for the new automated warehouses and higher costs in FY24 for those warehouses. We'll have to wait and see what happens with the Coles dividend.
