Yahoo Finance Coles Group (ASX:COL) Is Paying Out A Larger Dividend Than Last Year
Coles Group Limited (ASX:COL) has announced that it will be increasing its periodic dividend on the 30th of March to A$0.36, which will be 9.1% higher than last year's comparable payment amount of A$0.33. This takes the annual payment to 3.5% of the current stock price, which is about average for the industry.
See our latest analysis for Coles Group
Coles Group's Payment Has Solid Earnings Coverage
Unless the payments are sustainable, the dividend yield doesn't mean too much. The last payment made up 79% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 15.4%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 77% - on the higher side, but we wouldn't necessarily say this is unsustainable.
Coles Group Is Still Building Its Track Record
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of A$0.50 in 2020 to the most recent total annual payment of A$0.63. This implies that the company grew its distributions at a yearly rate of about 8.0% over that duration. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.
Coles Group May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that Coles Group's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Coles Group's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
Our Thoughts On Coles Group's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Coles Group is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Coles Group that investors should take into consideration. Is Coles Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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