I'd say Coles Group Ltd (ASX: COL) shares are one of the most underrated options for ASX blue-chip share passive income.
The supermarket business has an impressive market share in the food retailing industry as Australia's second-largest player.
Food is obviously a very important sector, perhaps even more important than banking, telecommunications or mining. We saw how defensive the company's earnings were during both the COVID-19 period and times of higher inflation.
Resilient earnings allow for a resilient dividend from the business.
Pleasingly, Coles has increased its annual dividend share each year since it demerged from Wesfarmers Ltd (ASX: WES) several years ago. Not many ASX blue-chip shares can say they've grown their dividend every year this decade – COVID-19 or the subsequent inflation period led to plenty of dividend cuts by banks and miners.
Let's look at whether analysts think Coles can continue this dividend streak.
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Dividend projection
According to the projection on Commsec, experts do expect the business to increase the payout to 75.5 cents per share in FY25. That would be a grossed-up dividend yield of 4.6%, including franking credits, at the time of writing.
The payout could get even better in FY27. The estimate on Commsec suggests the annual dividend could rise by 8.6% year over year in FY27 to 82 cents per share. That would be a grossed-up dividend yield of 5%, including franking credits, at the time of writing.
The 2028 financial year could get even better for owners of Coles shares. According to the forecast on Commsec, the annual payout could rise by 16.2% to 95.3 cents per share. That translates into a grossed-up dividend yield of 5.8%, including franking credits.
Dividend projections are not guaranteed of course, but I think the company can be a great choice for passive income, given how its sales and earnings can increase in a variety of ways. It can benefit from the rising population, benefiting from the efficiencies of the new advanced warehouses, and its growing range of own brand products.
Considering we've just started the 2027 financial year, I'm going to use the calculation for the FY27 dividend.
To earn $1,000 of dividend income, someone would need to own 1,220 Coles shares. Or, if we include the franking credits, it would take 854 Coles shares. At the time of writing, those two goals would cost approximately either $28,500 or $20,000.
Is this a good time to invest in Coles shares?
Analysts have somewhat mixed views on the business. According to Commsec, there are currently nine buy ratings on the business, five hold ratings and two sell ratings.
It looks like a reasonable time to buy Coles shares, though there could be even better opportunities out there.
