Better ASX blue-chip share to buy for resilient returns: Coles vs Transurban

A woman holds up hands to compare two things with question marks above her hands.A woman holds up hands to compare two things with question marks above her hands.

There are a number of strong ASX blue-chip shares for Aussies to choose from. Coles Group Ltd (ASX: COL) shares and Transurban Group (ASX: TCL) could be two of the leading candidates, but which of these two is the better option?

Coles is one of the leading supermarket businesses in Australia. It also operates some of the leading liquor retail chains in the country, including Coles Liquor, First Choice, Liquorland and Vintage Cellars. It also owns half of the Flybuys loyalty program.

Transurban is a toll road builder and operator. It has assets in Sydney, Melbourne, Brisbane and North America.

Inflation is boosting the revenue of both businesses

A lot of businesses are hurting from higher costs relating to inflation. However, both of these ASX blue-chip shares are seeing increased revenue thanks to the inflationary environment.

In Transurban’s recent presentation to the market, it noted “resilient freight and orbital travel has provided relative traffic stability and growth over recent years, with airport and CBD traffic now recovering well.” It revealed that FY23 third-quarter traffic showed an “uplift across all trip categories.”

Transurban noted that the benefit of short-term higher inflation compounds over the life of CPI-linked toll prices, while interest rates are expected to reduce in the coming years.

In the recent Coles FY23 third quarter update, it said that its continuing operations sales revenue grew by 6.6% to $9.4 billion. The supermarkets saw price inflation of 6.2%. Coles also reminded investors that it’s on track to deliver cumulative ‘smarter selling’ benefits of $1 billion across the four-year program by the end of FY23.

Higher revenue is not guaranteed to turn into higher profit, costs can grow even faster which hurts profitability.

But, profit is going well for both ASX blue-chip shares.  

I think it’s no surprise that the share prices of Coles and Transurban have risen around 10% since the start of the year.

Stronger profits to lead to bigger dividends?

Operating conditions are going so well for Transurban that it recently upgraded its distribution guidance by another 1 cent per security for FY23 to 58 cents per security. This would represent a growth of 41.5% compared to FY22.

However, at the current Transurban share price, it only represents a yield of 4%.

Estimates on Commsec suggest that Coles is going to pay an annual dividend per share of 65.5 cents. This would put the forward grossed-up dividend yield at 5.2%.

Are Coles shares or Transurban shares better?

I think the outlook for both businesses is promising. Transurban’s earnings could be boosted in the future by the WestConnex project, though that does come with execution risks.

For me, I think Coles is the better ASX blue-chip share choice for resilience. Everyone needs to eat food, but not everyone needs to go on a toll road, particularly if people’s budgets are tighter because of the current economic environment. While I’m not expecting another pandemic, I think COVID showed how resilient Coles’ earnings can be in a crisis.

Population growth can help both businesses grow earnings, so I’d be happy to own either of them.

But, I like the stronger passive income potential from Coles, as well as the company’s ongoing focus on improving its operations (‘smarter selling’), combined with a better offering for customers (such as its large own-brand selection of products).

The post Better ASX blue-chip share to buy for resilient returns: Coles vs Transurban appeared first on The Motley Fool Australia.

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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.

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