Insurance Australia Group vs Coles: Which ASX dividend comes out on top?

Insurance Australia Group vs Coles Group shares: which is better for income investors?

Investors looking for reliable income from their ASX portfolios might have their eyes on Insurance Australia Group Ltd (ASX: IAG) and Coles Group Ltd (ASX: COL). Both are heavyweights in their respective sectors and regular dividend payers, but offer very different business models, dividend profiles, and outlooks. Here’s my take on how these two stack up for income-focused investors.

The case for Insurance Australia Group

Insurance Australia Group is the leading general insurer in Australia and New Zealand, underwriting a wide range of policies—including motor vehicle and home insurance—for individuals and businesses. With top brands under its umbrella and a sizeable presence across both countries, IAG is a go-to name for everyday insurance needs.

The key fundamentals from the latest snapshot are:

• Dividend yield of 4.02%, ahead of Coles
• A P/E ratio of 18.59, which is well below Coles’ figure
• Market cap of $18.57 billion, making it a substantial player but smaller than Coles
• Earnings per share shown as -0.901, which doesn’t line up with the positive P/E (more on that in a moment)

When it comes to dividends, IAG’s payout has fluctuated over recent years. IAG’s businesses have long underwritten substantial premium volumes, but recent dividends have come with lower franking levels—only 25% for the most recent payment. Franking levels have shifted over time, often below full 100% franking in recent years, which could impact after-tax returns for those relying on franking credits.

The case for Coles

Coles is one of Australia’s leading supermarket and retail operators, serving millions of Aussies with groceries, liquor, and everyday essentials through its national store network and growing digital footprint. Coles is seen as a defensive, staples-oriented business, benefiting from the ongoing need for food and essentials regardless of the economic cycle.

Highlight fundamentals for Coles include:

• Dividend yield of 3.35%, slightly lower than IAG’s but very consistent
• A notably higher P/E ratio of 28.71
• Market cap of $31.40 billion—substantially larger than IAG, reflecting its consumer-facing scale and lower perceived risk
• Strong reported earnings per share of 0.812
• Full 100% franking on its dividends, boosting the loyalty of income investors who value franking credits

Coles has a solid record of regular, fully franked dividends, with recent payments showing both frequency and predictability. According to its most recent public description, Coles offers a comprehensive store network and has continued to innovate with its online shopping and loyalty programs, helping underpin its resilient earnings and reliable payouts.

Valuation comparison

There are a few clear divergences between IAG and Coles in terms of valuation and dividend attractiveness. Here’s how they compare on core metrics:

Note: IAG’s reported P/E ratio appears inconsistent with its negative EPS figure. This may be because the P/E is based on normalised or forecast earnings, rather than the statutory EPS shown above.

The main takeaway here for income investors is that IAG offers a higher dividend yield, but with lower franking and some inconsistency in earnings figures. Coles provides lower yield, but its dividends are fully franked and supported by positive reported earnings.

Recent share price performance

Comparing recent share price activity as of 30 September 2026:

• Insurance Australia Group: Closed at $7.94 as of 30 September 2026, slightly down -0.25% on the day. Its year-to-date (YTD) return is 3.8%.
• Coles Group: Closed at $23.36 as of 30 September 2026, up 0.21% on the day. Its YTD return stands at 12.4%.

Coles has outperformed IAG in recent months, delivering a much higher YTD return for shareholders.

Which is the better buy?

For income investors—with one eye on yield and the other on dividend predictability—my pick would be Coles Group over Insurance Australia Group.

Coles delivers fully franked dividends, which can boost after-tax returns for many Aussies, especially those investing via super funds or directly. While IAG’s yield is a touch higher on headline numbers, its payouts carry much lower franking, reducing their appeal for income seekers chasing franked income. There’s also some concern on the consistency front: IAG’s negative EPS versus a stated positive P/E ratio makes me pause, as it might flag earnings volatility or reliance on one-off adjustments.

Coles’ more expensive P/E might make value hunters wary, but as an income investor, I think the reliability, fully franked dividends, and solid recent performance tip the scales. You may give up a fraction of yield, but in exchange you get consistency, reliability, and maximum franking credits. That’s why, if I had to pick just one for an income-focused portfolio, my vote would go to Coles Group.

The post Insurance Australia Group vs Coles: Which ASX dividend comes out on top? appeared first on The Motley Fool Australia.

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Motley Fool contributor Laura Stewart 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. This article was prepared with the assistance of Large Language Model (LLM) tools for the initial draft. Any content assisted by AI is subject to our robust human-in-the-loop quality control framework, involving thorough review, substantial editing, and fact-checking by our experienced writers and editors holding appropriate credentials. The Motley Fool Australia stands behind the work of our editorial team and takes ultimate responsibility for the content published by The Motley Fool Australia.