Why Coles shares are a retiree’s dream for FY27

Coles Group Ltd (ASX: COL) shares have, in my opinion, been one of the best ASX blue-chip shares, and have mostly flown under the radar. The supermarket business offers retiree investors a number of positives.

The company’s key division is supermarkets, though it also generates earnings from liquor (Liquorland), Flybuys and financial services (insurance, credit cards and personal loans).

There are three elements that make me believe the ASX share is a very useful pick for retirees in FY27.

Good dividend yield

One of the best reasons to like the business is that it offers a solid level of passive income. That’s because it has a generously high dividend payout ratio and a reasonable price/earnings (P/E) ratio, leading to a good dividend yield.

Based on the projection on Commsec, the business is forecast to pay an annual dividend per share of 82 cents in FY27.

Using that estimate, Coles could pay a grossed-up dividend yield of 5%, including franking credits, at the time of writing. That’s a high enough yield to challenge the return from term deposits.

Growing payouts

For me, the most important factor is how consistently the supermarket business has paid and grown its dividends.

Coles started paying a dividend in 2019 after its demerger. It has grown its annual dividend per share every year since 2019, so it has already given investors several years of consecutive growth and I think it has potential to continue this.

The business is predicted to grow its annual payout regularly, according to Commsec. It could raise its annual payout to 75.5 cents per share in FY26, 82 cents per share in FY27 and 95.3 cents per share in FY28.

The company can deliver such pleasing dividend growth thanks to its rising profit.

Long-term earnings growth

There are a few long-term tailwinds for its net profit over time, which includes a rising population, long-term inflation of food prices, an expanding supermarket network, and strengthening operating leverage.

Part of the strategy includes the fact that Coles has built multiple high-quality, advanced warehouses, which help improve efficiencies, stock flow, online order fulfilment, and more.

The company’s revenue is regularly growing and this is coming through in the quarterly updates. In the FY26 third-quarter, total sales grew by 3.1% to $10.7 billion and supermarket sales rose by 4% to $9.8 billion. Impressively, e-commerce sales jumped 24.8%, with online sales penetration increasing to 13.6%.

Retirees could see Coles’ earnings per share (EPS) rise by a projected 11% in FY26, 7.3% in FY27 and 16% in FY28.

This means the business is valued at 24x FY27’s estimated earnings. It’s not cheap, but I think it’s a great long-term option.

However, it’s not the only ASX share I think would work very well for retirees.

The post Why Coles shares are a retiree’s dream for FY27 appeared first on The Motley Fool Australia.

More reading

• How to invest in ASX shares when you can’t find stocks to buy
• Woolworths shares vs Coles: Buy, hold, or sell these ASX giants?
• Which is better: A 4% dividend yield or a 5% term deposit?
• Buy, hold, sell: Coles, Telstra, Wesfarmers, and Woolworths shares
• Buying Coles shares? Here’s the dividend yield you’ll get today

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 no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.