There aren't too many S&P/ASX 200 Index (ASX: XJO) shares I'm fairly confident can increase their dividends in the next few years. Coles Group Ltd (ASX: COL) shares are one of the highest ranked on my list of reliable ASX dividend shares.
Coles is best known as being a major supermarket business in Australia. But, it also has a liquor division (including Coles Liquor, First Choice, Liquorland and Vintage Cellars), a financial services segment (insurance, credit and personal loans), and it's a 50% shareholder of Flybuys.
The business generates most of its revenue and operating profit from the supermarket division, which is a key reason why it could be a compelling dividend pick.
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Resilient demand
We all need food to eat, so there's a base level of demand for Coles products each year.
In the last five years, we've seen Coles benefit from the large amount of COVID-induced buying and the acceleration of revenue from the inflation of food prices.
In an environment with a high cost of living, some people may feel that they should buy more of their food from the supermarket rather than restaurants and takeaways.
Coles is also benefiting from the growing number of Australian consumers. According to the Australian Bureau of Statistics (ABS), the Australian population recently reached 27.5 million and is expected to reach 30 million in 2031. That's promising for Coles shares and earnings, in my mind.
Also, while food inflation has reduced compared to a year or two ago, inflation is still happening. UBS said in a recent note about inflation:
UBS Evidence Lab data indicates that 2Q25 food inflation has decreased slightly vs 1Q25, yet after moderating in Oct & Nov-24 has increased in Dec-24. (2) Dry grocery continues to moderate yet remains above 'fresh' with supplier requests continuing (albeit frequency has reduced) due to persistent inflation in conversion costs (freight [fuel, labour], manufacturing [energy, labour]) as well as specific commodities (e.g. cocoa)
…The Jun-24 UBS supermarket supplier survey forecasts inflation to lift slightly to 2.3% in the next 12mths (FY25E), up from 1.7% in Jan-24. A key question for CY25E is the extent of which COL & Woolworths Group Ltd (ASX: WOW) will accept supplier cost increases.
Ongoing revenue and profit growth could be a key influence on Coles' dividends in the foreseeable future.
Are Coles dividends safe?
With dividends paid from profit generation, I think Coles has the ability to provide shareholders with stable and potentially growing dividends.
The company's dividend has grown each year between 2019 and 2024. Its latest dividend per share was 68 cents in the 2024 financial year, which translates into a dividend yield of 5%, including franking credits.
UBS is forecasting dividend growth for Coles share owners in the coming years, with a dividend yield of 5.3% in FY25 (including franking credits) and 6.9% in FY29 (including franking credits).
There are other ASX shares with multiple years of dividend growth, but not many have as defensive earnings as Coles, in my view.
