The Coles Group Ltd (ASX: COL) share price continued its positive run and pushed higher again on Wednesday.
The supermarket giant’s shares climbed 1.5% to reach a record high of $18.23.
When the Coles share price hit this level, it meant it was up an impressive 21% since the start of the year.
This compares very favourably to the 10% decline by the S&P/ASX 200 Index (ASX: XJO) in 2020.
Why is the Coles share price at a record high?
Investors have been buying Coles shares due to its defensive qualities and its positive performance during the pandemic.
The latter was driven by pandemic-induced panic buying and led to Coles reporting stellar sales growth during the second half.
For example, during the third quarter of FY 2020, Coles delivered a 12.4% increase in total sales to $9,226 million. This was driven by a 13.1% lift in Supermarket sales to $8,230 million, a 7.2% increase in Liquor sales to $740 million, and a 4.3% rise in Express sales to $256 million.
Management also revealed that the first four weeks of the fourth quarter had been positive. It notes that there is early evidence of customers changing their habits by purchasing less convenience and impulse products and moving towards more cooking and baking from scratch.
All in all, this appear to have set Coles up to deliver a very strong sales result in FY 2020.
What about its profits?
Although Coles’ sales have been growing very strongly, it remains unclear whether its profits have followed suit. Increased staffing and investments in security, cleaning, and safety glass are all expected to weigh on its margins this year.
Nevertheless, I’m quietly confident it will deliver a solid profit result. I estimate a full year net profit after tax in the region of $984 million, which will be an increase of 5% on FY 2019’s result.
From this I expect a fully franked full year dividend of 60 cents per share to be declared. This equates to a 3.3% dividend yield based on the current Coles share price.
Should you invest?
Although its shares are at a record high, I would still be a buyer of them if you plan to invest for the long term.
This is because I believe the company is well-positioned to grow its earnings and dividends at a solid rate over the next decade.
And while there are a number of options in the space, I would choose Coles just ahead of rival Woolworths Group Ltd (ASX: WOW).
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More reading
- Is the Coles share price still attractive after it surged to a record high today?
- Which ASX shares will benefit from the second lockdown?
- 3 ASX shares to buy before earnings season
- 3 safe and strong ASX dividend shares to buy during the pandemic
- These ASX dividend shares will help you beat low interest rates
Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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