COL share price in focus
Coles is an Australian retailer offering a wide range of everyday products, including fresh food, groceries, general merchandise, liquor, fuel, and financial services. Founded in 1914 in Victoria, which remains its home base, Coles has been a prominent player in the Australian retail sector for over a century.
Previously owned by Wesfarmers from 2007 to 2018, Coles became a standalone entity when it was spun off and listed on the ASX under the ticker symbol ‘COL’. While the supermarket division is the primary source of earnings, Coles also owns or operates several related businesses, including flybuys, Liquorland, First Choice, Vintage Cellars, and Coles Express.
Although often seen as the ‘smaller sibling’ to Woolworths, Coles holds a significant share of the Australian grocery market, accounting for around 28%. Since becoming a separate listed company, Coles has earned a reputation as a reliable dividend payer.
The appeal of ASX Consumer Staples shares
The S&P/ASX200 Consumer Staples Index (ASX: XSJ) has delivered returns of -2.71% per year over the last 5 years. That compares to the broader ASX 200 which has returned 3.95% per year over the same period. Let’s explore why a consumer staples company like COL could be a smart choice for your portfolio.
Big dividends
Consumer staples companies aren’t typically known for rapid growth, but where they usually excel is in providing consistent dividend income. Over the past 5 years, COL has offered an average dividend yield of 3.76% annually.
This steady payout is linked to the nature of their business, which brings us to the next reason investors favour consumer staples companies…
Resilience
No company or sector is totally immune to recessions, but consumer staples companies are often better equipped than others to weather economic downturns. When the economy hits tough times (which is inevitable), discretionary spending always takes the hit first. Demand for staples remains relatively stable in comparison. This resilience can give companies like COL a notable advantage over more cyclical sectors during a downturn.
Lower volatility
Another key benefit of consumer staples companies is their lower market volatility. Because the demand for their products and services is consistent, these businesses are less subject to economic cycles than sectors like resources and commodities.
Companies like Woolworths or Coles also have high market share which tends to give them more pricing power, so they can act as a price maker instead of a price taker. So, consumer staples companies can bring some stability to a diversified portfolio.
COL share price valuation
One way to have a ‘quick read’ of where the COL share price is would be to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, Coles Group Ltd shares have a dividend yield of around 3.53%, compared to its 5-year average of 3.76%. Put simply, COL shares are trading below their historical average dividend yield.
Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing. In the case of COL, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the COL share price.
