Coles Group Ltd (ASX: COL) shares have long been popular among passive income investors for their lengthy track record of reliable dividend payments,
The S&P/ASX 200 Index (ASX: XJO) supermarket giant even delivered two fully franked dividends in 2020, a year in which many ASX 200 stocks suspended their payouts due to the pandemic.
As for the past year, Coles paid a final dividend of 32 cents per share on 25 September and an interim dividend of 37 cents per share on 27 March.
At the current Coles share price of $21.85, the stock trades on a fully franked trailing yield of 3.2%.
Now, there are certainly some ASX dividend stocks paying a higher yield. But very few can match Coles' reliable payout record.
And over the last 12 months, the ASX 200 supermarket has rewarded shareholders with more than just passive income.
Despite dipping today, the Coles share price is up a benchmark-smashing 36.1% since this time last year.
So, is Coles stock a good buy for its income?
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Tapping Coles shares for passive income
Morgans' Damien Nguyen recently ran his slide rule over Coles shares (courtesy of The Bull).
"Coles is a defensive stock with steady earnings and a solid position in the supermarket space," said Nguyen, who has a hold recommendation on the stock at the moment.
Nguyen noted Coles' appeal for passive income investors.
"It's a reliable performer, particularly during uncertain economic times, and remains attractive for dividend investors," he said.
But he has concerns over further share price gains in the medium term.
According to Nguyen:
Rising costs and fierce competition limit its growth potential, and, in our view, there are few near-term catalysts for share price upside. While Coles is a solid hold for income seekers, it may underperform growth-focused names if markets start to settle.
We suggest investors retain Coles for income but wait for better value or growth signals before topping up.
What's the outlook for the Coles share price?
If you're investing for passive income, you obviously would like to see your ASX dividend stocks produce some reasonable share price gains over time as well. At the very least, you don't want to see them go backwards.
While the future remains inherently unknown, Macquarie Group Ltd (ASX: MQG) believes Coles is well-placed to deliver some reasonable share price gains atop that welcome, ongoing passive income.
Following Coles' third-quarter results, the broker retained its outperformance rating on the ASX 200 supermarket with a 12-month price target of $23.10. That represents a potential upside of 5.7% from current levels.
