Investors will not hear from Coles Group Ltd (ASX: COL) this earnings season until much later this month. Coles is scheduled to drop its latest half-year earnings report on 27 February, meaning we have quite a few ASX 200 shares to get through before we hear from the supermarket operator. So today, let's talk about the current Coles stock price and whether it is cheap enough for me.
I've long advocated Coles stock as a dividend investment, perfect for income-focused investors. Its nature as a defensive consumer staples stock makes Coles a reliable provider of dividend paycheques. This is evident in Coles' impressive dividend track record, which has seen this company reward shareholders with an annual dividend hike every year since 2019.
However, I am not an investor who solely prioritises dividend income. I try to aim for the highest absolute returns possible in my own portfolio, whether those returns come from dividends or from capital growth.
As such, I don't own Coles shares at the present time. But I wouldn't be opposed to adding this company to my portfolio, given its clear moat, pricing power, and huge store network. It would have to be at the right price, though.
So what is the right price for Coles?
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What share price would I buy Coles stock at?
Well, it's not the price at the time of writing of $22.98. At this stock price, Coles is trading on a dividend yield of 3.12%. That means its shares would need to appreciate by a compounded 5.1% per annum over the years ahead just to keep up with the long-term return of the market (8.2%). That is certainly possible, but unlikely in my view. Last year, Coles reported underlying profit growth of 3.1% for its FY2025. If profits grow at 3% per annum on average going forward, it's unlikely that its share price growth will meaningfully exceed that growth rate.
I estimate that for Coles to be a consistent market beater, it would need to have a dividend yield of at least 5%. Given Coles paid out 69 cents per share in fully-franked dividends over 2025, we would need to see the company's share price drop to about $13.80 to reach a 5% dividend yield.
I'd be happy to pay $14.50 or even $15 for Coles stock, since the company has a strong track record of increasing its dividends. But I wouldn't be paying anything close to $20, let alone the $22 the company is going for at the time of writing.
So while I still hold the view that Coles is a strong income stock, I don't see it as a long-term market beater at current prices.
