Coles Group Ltd (ASX: COL) shares are a popular option for blue chip investors.
The supermarket giant has delivered solid returns and regular dividends since its listing in 2018.
But would the company be a good option for a $10,000 investment today? Let's see what that level of investment could turn into in 12 months according to one leading broker.
Investing $10,000 into Coles shares
At the end of last week the Coles share price was fetching $18.16.
This means that that a $10,000 investment (and an additional $6.16) would allow me to snap up 551 units.
According to a recent note out of Bell Potter, its analysts believe that Coles shares are worth considerably more than the market is currently valuing them at.
The broker initiated coverage on the supermarket giant's shares with a buy rating and $21.55 price target.
If Bell Potter's prediction proved accurate and its shares rose to that level, my 551 units would have a market value of $11,874.05. That's an 18.7% return on my original investment and would generate capital gains of over $1,800.
But the returns won't stop there. Bell Potter is forecasting a fully franked dividend of 68 cents per share in FY 2025 and then 78 cents per share in FY 2026.
This means that my 551 Coles shares would generate dividend income of $375 in FY 2025 and then $430 in FY 2026.
If we add the $375 dividend income to my share price returns, I would be generating a total 12-month return of approximately $2,150 from my original $10,000 investment.
Why is the broker bullish?
Bell Potter has been impressed with the company's performance in recent years and believes it is well-placed to build on this. It said:
Since FY20 COL has generated CAGR earnings growth of 3.7% p.a. while paying out 81% of cumulative profits in dividends, achieving 4.2% p.a. growth in dividends over that period. Looking forward, we anticipate delivery on business improvement initiatives (Simplify & Save) and delivery of targeted returns on recent capital initiatives to drive continued growth in earnings and dividends through to FY27e
The broker also believes that Coles shares are attractively priced compared its arch-rival. It concludes:
We initiate coverage with a Buy rating. While we see FY25e as a year of consolidation on a reported basis, we see COL as providing an attractive earnings growth profile through to FY27e on an underlying basis, with high levels of cash generation supporting growth in dividends. In addition, at 9.1x FY25e EBITDA, COL continues to reflect relative value compared to WOW (~5% discount).
