Does the Coles dividend forecast make it a great buy for income?

Coles Group Ltd (ASX: COL) has been growing both its dividends and share price since it listed on the ASX in 2018. But is now a good time to snap up the S&P/ASX 200 Index (ASX: XJO) supermarket operator’s stock for passive income? Let’s take a look.

What kind of dividends can investors expect from Coles shares?

Coles shares are arguably a potential dividend winner by design. The company aims to deliver a dividend payout ratio of between 80% and 90%.

Thus, the company’s dividends will likely grow alongside its profits. And brokers are seemingly expectant.

Citi is forecasting Coles shares to offer investors 72 cents per share in financial year 2023. That’s tipped to grow to 77 cents per share in financial year 2024.

That’s slightly higher than Morgans’ outlook – 64 cents per share in financial year 2023 and 66 cents per share in financial year 2024.

For comparison, Coles shares provided 63 cents per share in financial year 2022 – a 3.3% increase on those of financial year 2021.

Potential risks

Of course, no investment is without risks – even those capable of creating passive income.

Coles will assumably only pay dividends if its profits increase. Thus, headwinds currently facing the company could dent its periodic offerings.

The supermarket giant previously noted the cycling of lockdowns in the first half of financial year 2022 could impact its upcoming earnings. Meanwhile, inflation was tipped to take a bite out of its bottom line this fiscal year.

Coles shares could be an ASX dividend buy

Speaking of inflation, while Coles shares are by no means immune to the cash eating measure, the supermarket operator is a discretionary retailer. Aussies can’t simply stop buying food when the cost-of-living rises.

That means its earnings are arguably defensive. Thus, I believe Coles shares could make a good passive income buy in the current economic environment. And I’m not alone in thinking so.

Both Morgans and Citi have equivalent buy ratings on the stock, with respective price targets of $19.50 and $18.90. That means Coles shares could offer up to 8% upside.

The post Does the Coles dividend forecast make it a great buy for income? appeared first on The Motley Fool Australia.

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More reading

• Here’s how I’d start building a second income this February, for $30 a week
• Should I buy Coles shares before this month’s ASX earnings update?
• Goldman reveals the ASX shares that could surprise to the upside (and downside) this reporting season
• ASX shares investors rejoice! RBA says inflation has now peaked
• ‘Attractive stock’: Fundie names one ASX share to buy, one to watch, one to avoid

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Brooke Cooper 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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