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Looking for an ASX blue chip share? Try the Coles Group Ltd (ASX:COL) share price

The Coles Group Ltd (ASX:COL) share price is up 12.1% since the start of the 2024. It's probably worth asking, 'is the COL share price undervalued?'
The Coles Group Ltd (ASX:COL) share price is up 12.1% since the start of the 2024. At the same time, the Wesfarmers Ltd (ASX:WES) share price is 3% away from its 52-week high. This brief article explains why it could be worth adding COL and WES shares to your ASX investing stock watchlist.

COL share price in focus

Coles is an Australian retailer providing customers with everyday products including fresh food, groceries, general merchandise, liquor, fuel and financial services. It was founded in 1914 in Victoria, where its HQ still remain.

Coles was formerly owned by conglomerate Wesfarmers from 2007 until 2018, when it was spun-off and listed as a separate entity on the ASX under the ticker symbol ‘COL’. Coles’ earnings are dominated by the supermarkets side of the business, however, it partly or fully owns or operates adjacent businesses like flybuys, Liquorland, First Choice, Vintage Cellars, Coles Express and more.

Every week millions of Australians choose to shop for essential food and drink at Coles because of its prices, range and location. While it is the smaller brother of Woolworths, which has nearly 40% market share, Coles isn’t too far behind, with about 28%.

WES shares

Founded in 1914, Wesfarmers is an Australian conglomerate headquartered in Perth. It mainly has operations across Australia and New Zealand, operating in retail, chemical, fertiliser, industrial and safety products.

It’s easy to think of Wesfarmers like a publicly listed private equity company. It has a long history of buying businesses, benefitting from their cash flows, re-investing in them and then selling them for a more attractive price. A good example of this might be Coles Group, which is bought in 2007 and spun out in 2018. However, by far (over 50%) of the company’s operating profit comes from Bunnings, the #1 hardware and home improvement business in Australia. It bought the remaining 52% of Bunnings that it didn’t own in 1994 for $594 million. Other brands include Kmart, Target, Officeworks, Blackwoods and Priceline Pharmacy.

Wesfarmers has long been considered a leading blue chip stock for the average ASX share portfolio. Wesfarmers has quality assets such as Bunnings, Kmart and Officeworks and pays a consistent dividend to its shareholders.

Share price valuation

One way to have a ‘speedy read’ of where the COL share price is, is to study something like dividend yield thru time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can be influenced by yearly or bi-yearly fluctuations. Currently, Coles Group Ltd shares have a dividend yield of around 3.64%, which compares to its 5-year average of 3.88%. Put simply, COL shares are trading below their historical average dividend yield.

Since it is a more mature-style business, the WES share price is offering a historical dividend yield of around 2.65%, which compares to its 5-year average of 3.24%. The Rask websites, especially our Rask Education platform, offer free tutorials explaining Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). Both of these models would be a better way to value the WES share price.

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With bond ETFs like ASX:IAF and the S&P 500 riding high, now could be one of the best times to start earning passive income from a portfolio of shares and ETFs.

In this free analyst report, our Chief Investment Officer, Owen Rask, names 10 ASX stocks and ETFs to watch.

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