Why I think Coles shares are a compelling buy today

a woman smiles widely as she leans on her trolley while making her way down a supermarket grocery aisle while holding her mobile telephone.

a woman smiles widely as she leans on her trolley while making her way down a supermarket grocery aisle while holding her mobile telephone.

It hasn’t been a scintillating day so far for ASX shares. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) is up by 0.01% and is just over 6,800 points. It hasn’t been a great day for Coles Group Ltd (ASX: COL) shares either.

The Coles share price is slightly underperforming the index today. The supermarket operator is currently trading at $18.755 a share, down 0.13% for the day so far.

But today’s moves hide what has been a relatively successful year for Coles shares. The company has gained a healthy 4.5% over 2022 so far. That contrasts well against the ASX 200, which is still down more than 10.3% year to date.

But I think the Coles share price remains at a compelling pricing point for a long-term investor today for two reasons.

Inflation is here

The first is Coles’ inherent nature. This company is, in my opinion, one of the most inflation-proof companies on the entire ASX. On a day when Australians have found out that inflation has hit a 20-year high of 6.1% on an annualised basis, inflation is certainly a concern all investors should be considering.

But Coles is one of the most inflation-proof businesses out there. It only really sells products that we all have to buy – food, drinks, and household essentials. Already, Coles is one of the cheapest places to shop for these everyday essentials since it faces perpetual and fierce pricing competition from its rivals, like Woolworths Group Ltd (ASX: WOW) and Aldi.

Since Coles has this reputation, most customers will likely continue to shop at Coles, even if the grocer passes on its rising costs to its prices. After all, Coles is facing the same inflationary pressures as Woolies or Aldi. So it’s very likely that Coles’ competition will be passing on these increased costs as well. 

We all need to eat. And even though prices are rising, Coles is still going to be one of the cheapest places to buy those life essentials. Thus, I think Coles’ earnings will be shielded from the worst of inflation.

Coles shares offer dividend income

The second reason I think the Coles share price is a buy for a long-term investor today is the company’s dividend. In these uncertain times, dividends are a welcome boost to an investor’s portfolio. There’s nothing quite like cold hard cash to give one’s portfolio a shot in the arm, especially amid volatile share prices.

And the Coles dividend is certainly one to consider. It’s currently at a trailing yield of 3.25% on current pricing, well above that of the Woolworths share price.

Further, Coles’ dividends come with full franking, which means this yield grosses-up to 4.64% when including the value of those franking credits.

The company also has a strong history of raising its dividend. Coles paid out 57.5 cents per share in dividends over 2020 but boosted this to 61 cents per share over 2021.

As my Fool colleague James covered yesterday, ASX broker Morgans is expecting the company to jack up its dividends again over the next 12 months to a total of 64 cents per share.

Thus, all signs point to Coles shares being able to provide a steady and meaningful stream of dividend income for investors going into the future.

So those are the two reasons why I think the Coles share price is a compelling option for investors to consider today in our new high-inflation world.

At the current Coles share price, this ASX 200 blue chip share has a market capitalisation of $25.1 billion, with a price-to-earnings (P/E) ratio of 25.2.

The post Why I think Coles shares are a compelling buy today appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. 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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