Is Coles now one of the best ASX 200 dividend shares?

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer

The Coles Group Ltd (ASX: COL) share price has risen strongly so far in 2023, up around 10%. With its dividend increasing significantly in the company’s FY23 half-year result, should it now be considered one of the best S&P/ASX 200 Index (ASX: XJO) dividend shares?

Although it’s early in 2023, we’ve already seen some large dividend cuts from some of the ASX’s biggest dividend payers.

In the Fortescue Metals Group Limited (ASX: FMG) FY23 half-year result, the dividend was cut by 13% to 75 AU cents per share.

The BHP Group Ltd (ASX: BHP) dividend just took a massive dive in the HY23 result, dropping by 40% to 90 US cents per share.

Certainly, Coles reported much better numbers for income-focused shareholders.

Coles shares to pay enlarged dividend

The supermarket business reported that its sales increased 3.9% to $20.8 billion and earnings per share (EPS) from continuing operations went up 11.6% to 46.3 cents.

This enabled the board to have the confidence to increase the interim dividend by 9.1% to 36 cents per share.

Added to the FY22 final dividend of 30 cents per share, that means the current annualised dividend is 66 cents per share.

At the current Coles share price, the business has a grossed-up dividend yield of 5.2%.

While that’s not the biggest dividend yield out there, the annual dividend per share has steadily grown since 2019.

Indeed, the Coles dividend grew faster than inflation at its supermarkets. FY23 half-year inflation was 7.4% at its supermarkets, with an inflation rate of 7.7% in the second quarter.

Is it one of the best ASX 200 dividend shares around?

The Coles share price has generally trended higher over the past five years, along with earnings steadily rising.

When looking at other major ASX 200 dividend shares, such as Commonwealth Bank of Australia (ASX: CBA) and BHP, both of those big names have seen a dividend cut since the start of the COVID-19 pandemic.

As I mentioned, Coles kept increasing its dividends during that time.

So, the supermarket business has achieved an impressive level of consistency, even if the major ASX 200 dividend shares like mining shares and bank shares started with higher dividend yields.

I think that Coles is doing all the right things to improve its financials and grow the business.

The banks and miners are capable of producing good returns, but I think it only makes sense to buy such big businesses when they are going through a weak point in the economic or commodity cycle, rather than at their current position of strength.

While there are a few other ASX 200 dividend shares that could make an even stronger case, I believe Coles has cemented itself as one of the leaders when it comes to generating passive income.

The post Is Coles now one of the best ASX 200 dividend shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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 Coles Group. 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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