Almost ready to retire? Here’s why I’d buy Coles shares for dividends

If you’re almost ready to retire, no doubt you’ve begun to think about how to go about funding your golden years. Thankfully, we’re all living longer than we used to. But this means that we have to plan for a retirement that lasts not just years but (hopefully) decades. ASX dividend shares can help in this regard.

Finding an ASX dividend share to fund your retirement can be tricky. Capital preservation is a must, as is a strong and reliable stream of dividend income, ideally replete with franking credits too. That’s where I think Coles Group Ltd (ASX: COL) shares can come in.

Coles is a retail share that needs little introduction. Chances are most of us would have shopped there recently. But here’s why I think Coles has what it takes to be a valuable part of an ASX retirement portfolio.

Firstly, this company is not looking too expensive right now. Coles was trading at $17.11 a share at the close on Friday. That gives the company a price-to-earnings (P/E) ratio of 21.74. Compared with arch-rival Woolworths Group Ltd (ASX: WOW), which is currently on a P/E of 27.88, this is looking pretty decent in my view.

I’m not saying Coles won’t trade lower from here. But I think a devastating and permanent or semi-permanent loss of capital is unlikely.

Why Coles shares are worth considering for an investor approaching retirement

But can Coles fund a steady and reliable stream of dividend income? I think the answer to that question is ‘yes’ as well. Ever since Coles listed on the ASX in its own right back in late 2018, it has been increasing its dividends.

2020 saw the company dole out 57.5 cents per share in dividends. But in 2021, Coles upped this to 61 cents per share and again this year to 63 cents per share.

We can see the non-cyclical nature of Coles’ consumer staples nature shine through here. That is certainly something that an investor looking for a steady dividend income can appreciate.

This track record lends me confidence for Coles’ future as an income payer. This view is backed up by broker Morgans. Morgans recently pencilled in more dividend hikes over 2023 and into 2024 as well. And yes, Coles’ dividends come with full franking credits too.

At the present share price, Coles offers a trailing dividend yield of 3.68%. If we factor in the full franking credits that Coles offers too, this yield grosses up to 5.23%.

So all in all, I think Coles is a perfect ASX dividend share to consider if you are nearing retirement. It may not offer breakneck returns going forward. But I think it can offer secure, stable and full-franked dividend income well into the future. What more could a retiree want?

The post Almost ready to retire? Here’s why I’d buy Coles shares for dividends appeared first on The Motley Fool Australia.

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• If you bought $15,000 worth of Woolworths shares this year, here’s how much dividend income you’d have
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• How big will the Coles dividend be in 2023?
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Motley Fool contributor Sebastian Bowen 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 COLESGROUP DEF SET. 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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