The Coles Group Ltd (ASX: COL) share price has soared in the last several weeks, and it's close to its all-time high, as the chart below shows.
Coles isn't just a supermarket business, though that segment makes the lion's share of earnings. Other businesses include Coles Liquor, Liquorland, Flybuys, and Coles Financial Services (insurance, credit cards, and personal loans).
Its earnings diversification is not the reason why I think the company is appealing. Instead, there are (at least) three aspects that make Coles shares even at this level.
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Inflation hedge
Time will tell how much inflation flows through the economy as a result of the Middle East conflict, but it could be noticeable or even substantial, depending on how long it takes before fuel starts flowing out of the Middle East again at a normal rate.
A few years ago, Coles showed it was very willing to pass on inflation to customers (which was a boost to revenue). Perhaps the company would handle the situation slightly differently these days.
Plenty of businesses may struggle in the face of a higher inflationary period, but Coles could be a good hedge for inflation.
Even without higher inflation, I still believe Coles is capable of delivering rising revenue thanks to Australia's growing population, its expanding own brand product range, and a growing supermarket range.
Improving profit margins
The company's profit margins are regularly increasing thanks to its efforts at improving its supply chain.
Each of its profit lines improved at a faster pace than the one before it. In the FY26 half-year result, it reported revenue growth of 2.5%, operating profit (EBITDA) growth of 7.8%, EBIT growth of 10.2%, and underlying net profit growth of 12.5%.
The business has invested significantly in automated distribution centres (ADCs) and customer fulfilment centres (CFCs).
The ADCs and CFCs are helping improve in-store availability, stock freshness, and efficiencies (including costs).
With the CFCs specifically, they're delivering a "significant uplift in customer metrics". There has been a more than 2x perfect order rate compared to the in-store fulfilment, an increase in the range of 33% compared to the average store range, and there has been a significant increase in the net promoter score (NPS – customer satisfaction).
Solid dividend yield
At the current Coles share price, it doesn't offer the biggest dividend yield around. But it's at an appealing level for investors wanting passive income.
According to the projection on CommSec, it's forecast to pay an annual dividend per share of 76.6 cents in the 2026 financial year. That translates into a grossed-up dividend yield of 4.8%, including franking credits.
