Coles Group Ltd (ASX: COL) shares have done better than the S&P/ASX 200 Index (ASX: XJO) in 2023 to date. I think the supermarket business could continue to outperform and it may deliver strong passive income.
Coles shares have risen 9.5%, while the ASX 200 has only climbed 6%.
The supermarket company has managed to grow its earnings and dividends over the last few years.
I think earnings growth can be a key driver for both improving the Coles share price and growing the dividend.
One of the simplest drivers of Coles’ earnings is population growth in Australia. The more potential customers there are in the country, the more items that can go through Coles checkouts. The return of immigration to Australia is likely to help the business, in my view.
But, I think the projections are very promising for the Coles share price and dividend.
Growth expected
Commsec numbers suggest that Coles could generate earnings per share (EPS) of 81 cents in FY23. This would put the Coles share price at just over 22 times FY23âs estimated earnings.
The supermarket business could then generate 83.6 cents of EPS in FY24, which would be a valuation of under 22 times FY24âs estimated earnings.
Finally, the current projections suggest a larger jump in profit in FY25, with EPS forecast to rise to 95.5 cents. This would put the company at 19 times FY25âs estimated earnings.
The dividend is also expected to keep growing.
The two dividends from the business in FY22 amounted to 63 cents per share. Commsec suggests that the FY23 dividend per share could be 65 cents, which would be a grossed-up dividend yield of 5.15%.
The dividend could rise to 67 cents per share in FY24, which would be a grossed-up dividend yield of 5.3%.
Commsec numbers suggest that Coles could grow its dividend to 76 cents per share, which would be a grossed-up dividend yield of 6%. Thatâs good passive income and it could keep growing nicely from there.
Why I think Coles shares can outperform
Coles continues to grow revenue, which can be a useful driver for earnings before interest, tax, depreciation and amortisation (EBITDA), earnings before interest and tax (EBIT) and net profit after tax (NPAT).
The companyâs profit margins are currently being boosted by the reduction of COVID-19 costs, as well as the cumulative $1 billion of benefits from its âsmarter sellingâ program.
Smarter selling benefits include better checkouts, energy reductions, measures to stop theft, and using advanced analytics and store-specific data to optimise markdown rates.
The business is also working on its automated distribution centres, which can help the business become more efficient and profitable.
When we combine the prospect of good passive dividend income, rising profit and re-investment into better technology, I think the outlook is bright.
The post Could Coles shares be a market-beating buy for passive income right now? appeared first on The Motley Fool Australia.
Should you invest $1,000 in Coles Group Limited right now?
Before you consider Coles Group Limited, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Coles Group Limited wasn’t one of them.
The online investing service heâs run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
See The 5 Stocks
*Returns as of April 3 2023
(function() {
function setButtonColorDefaults(param, property, defaultValue) {
if( !param || !param.includes(‘#’)) {
var button = document.getElementsByClassName(“pitch-snippet”)[0].getElementsByClassName(“pitch-button”)[0];
button.style[property] = defaultValue;
}
}
setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()
More reading
- Here are the ASX 200 dividend shares to buy: analysts
- 5 things to watch on the ASX 200 on Monday
- What’s next for Wesfarmers shares after cashing out $700 million from Coles?
- How much would you need to invest in Coles shares to generate a $100 monthly passive income?
- How much do you need to invest to give up work and live only off dividend income?
Motley Fool contributor Tristan Harrison 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 Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
from The Motley Fool Australia https://ift.tt/kHnQ4bP
Stock Pick 