It could be a future of strong dividends for owners of Coles Group Ltd (ASX: COL) shares, if a set of predictions come true.
Coles has been one of the more impressive ASX blue-chip shares in terms of its dividend reliability. The company has grown its annual dividend per share each year since 2019.
Meanwhile, many other ASX dividend shares have cut their payouts since the start of the COVID-19 pandemic, including Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Macquarie Group Ltd (ASX: MQG), BHP Group Ltd (ASX: BHP), and Rio Tinto Ltd (ASX: RIO).
The broker UBS believes that Coles will continue to pay larger dividends to shareholders over the next few years.
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First, FY25
We're currently in the 2025 financial year, and the broker thinks Coles could deliver solid numbers.
When Coles released its FY24 result, UBS said that the supermarket company's operating profit (EBIT) outlook "remains strong". The broker noted the business has enjoyed market share gains and volume growth, as well as a reduced amount of loss (including theft).
The broker said:
Looking forward, gross margin and cost of doing business (CODB) to sales drivers continue which supports further EBIT margin expansion despite rising D&A [depreciation and amortisation).
It's important to remember that profit is essential for dividends because it funds the payments. UBS forecasts a low single-digit rise in profit in percentage terms in FY25 for Coles, which could help fund a 7% increase in the dividend per share to 73 cents.
At the current Coles share price, that translates into a fully franked dividend yield of 4% and a grossed-up (with franking credits) dividend yield of 5.8%.
Next, FY26
Coles could have an even better year in FY26, according to the projections.
UBS notes that the Witron and Ocado distribution centres are progressing, with the benefits to be realised in the 2026 financial year.
The broker is forecasting that Coles' profit growth can accelerate in the 2026 financial year. Earnings are predicted to increase by approximately 15% in FY26.
The growing profit can help increase the dividend per share by 16% to 85 cents per share. This translates into a grossed-up dividend yield of 6.8%.
Then, FY27
UBS expects that the good times can continue into the 2027 financial year.
The broker believes the net profit can increase another 6.75% in FY27, and Coles share owners could receive yet another dividend increase.
The dividend per share is projected to increase by another 11.75% to 95 cents per share, which would be a grossed-up dividend yield of approximately 7.5%.
After that, FY28
Coles could see yet more revenue, earnings and dividend growth in the 2028 financial year. This could be music to shareholders' ears, though year after year of growth is not guaranteed.
UBS projects that the supermarket business could see earnings growth of 6%, which could enable a 5.25% rise in the dividend per share to $1. At the current Coles share price, that would translate into a grossed-up dividend yield of 8% in FY28.
Finally, FY29
If UBS is right, the 2029 financial year could be the best year of this series of projections.
According to the broker, Coles may not see much profit growth in FY29. The business is forecast to see earnings rise 3.8% to $1.57 billion by the end of the 2029 financial year.
This profit rise could help the company deliver Coles' shareowners a 4% rise in the dividend to $1.04 per share. That'd be a grossed-up dividend yield of 8.3%, which would be a very good yield, in my opinion.
