Coles Group Ltd (ASX: COL) shares are a significantly underrated pick when it comes to blue-chip passive income, in my view.
Being an attractive dividend pick isn't just about dividend size; it's also about payment reliability.
Numerous ASX blue-chip shares have reduced their payout since the start of 2020, but not Coles.
Let's run through whether the business is an attractive buy right now.
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Reliable dividend
For me, seeing consistent growth of the dividend is a great sign of a business I can rely on for passive income.
Past dividend performance is not a guarantee of future dividend returns, of course, but I think it shows how things can go for the company when conditions are reasonable.
Coles has hiked its annual dividend per share each year since 2019, meaning several years in a row of dividend growth, an impressive record.
In FY26, the company grew its annual dividend per share by 13% to 78 cents. This came after a 2.8% rise in sales revenue, operating profit (EBIT) grew 9.9% to $2.3 billon and underlying net profit rose 13.7% to $12.5 billion
Impressively, the supermarket division delivered 5.1% sales revenue and 12.2% EBIT growth, which was the core driver of the company's financials.
Solid start to FY27
The company said that it enters FY27 in a strong position, with supermarkets having gained market share and significantly improved customer satisfaction scores over the past year. Sales growth for the first eight weeks of FY27 was consistent with the fourth quarter of FY26.
In the first few weeks of FY27, sales momentum was well ahead of the FY26 fourth quarter, though the Ooshies collectibles campaign by Coles' main rival in late July and early August put a speed brake on its growth rate.
It's clear that the business continues to deliver good growth and that's a driver of future value within the business.
Is the Coles dividend yield attractive?
The projection on Commsec suggests the business could hike its annual dividend by 7% in FY27. That potential payout translates into a grossed-up dividend yield of 5.2%, including franking credits, at the time of writing.
For a starting yield for the next 12 months, I think it's a pleasing beginning dividend. It's not the biggest yield on the ASX, but the steady improvement of the financials over time (including the advanced new warehouses) makes this an appealing business to me.
According to Commsec, there are currently 17 analyst ratings on the business – eight of those calls were a buy, seven were a hold, and just two were a sell. If you're looking for a defensive investment, I think it's a great time to invest.
