The Coles Group Ltd (ASX: COL) dividend has been rising over the last few years. We're going to take a look at where the passive income could go from here.
Dividend growth is not certain. In-fact, a payout isn't guaranteed at all. Dividends are paid from the profit a business makes in that year and previous years. The dividend is declared by the board of directors.
Coles has an impressive market share in the Australian grocery retailing space alongside Woolworths Group Ltd (ASX: WOW). Due to the ongoing demand for food, I'd say Coles has defensive earnings and that means it can provide investors with a resilient base dividend and hopefully continue growing it.
But, profit growth is expected in the coming years thanks to investments in advanced distribution facilities and ongoing sales growth, according to the broker UBS. Let's take a look at the projections of the Coles dividend for the next few years.
FY25
According to the broker UBS, its supermarket supplier survey suggested that Coles had a better June 2025 quarter (April to June 2025) compared to Woolworths.
However, the broker believes Aldi is best placed to win market share over the next six months with IGA the most likely to lose market share over the upcoming half-year period.
UBS said suppliers are expecting market growth over the next 12 months of 1.9%, though inflation is expected to be 2.7% (up from expectations from January 2025 of 2.6%), led by fresh grocery suppliers. Around three quarters of respondents are expecting it to be more difficult to pass on cost of goods inflation over the next 12 months.
In the 2025 financial year, Coles is expected to pay an annual dividend per share of 72 cents. At the current Coles share price, that translates into a grossed-up dividend yield of 5%, including franking credits. FY25 has finished but we haven't seen the FY25 result yet.
FY26
The 2026 financial year could see a significant increase of the Coles dividend. In FY26, UBS is predicting Coles could deliver payout growth of approximately 15% year over year to 83 cents per share.
If Coles can deliver the predicted further dividend growth in the current financial year, then it could pay a grossed-up dividend yield of 5.8%, including franking credits.
FY27
The 2027 financial year could see another increase for the Coles dividend. In FY27, the broker is forecasting that Coles could hike its dividend by another 15.7% to 96 cents per share.
Assuming Coles did decide to pay that dividend, it would translate into a grossed-up dividend yield of 6.7%, including franking credits.
FY28
Things could get even better for owners of Coles shares in the 2028 financial year, with a prediction that the supermarket's dividend could increase by 4.2% to $1 per share.
At the current Coles share price, that equates into a future grossed-up dividend yield of 7%, including franking credits.
FY29
The supermarket giant could pay the largest dividend of all in the 2029 financial year.
UBS is currently forecasting that Coles' annual payout could increase 5% to $1.05 per share. At the current valuation, the business could provide a grossed-up dividend yield of 7.4%, including franking credits.
If those predictions do become reality, investors may be able to look forward to a steadily-growing payout with a very strong yield by the end of FY29.
UBS currently has a buy rating on Coles shares with a target price of $23.50, implying a rise of more than 12% within a year.
