For many Australian investors, particularly those with a self-managed super fund (SMSF), blue-chip stock Wesfarmers Ltd (ASX: WES) is a core holding.
This status of blue-chip is due to a multitude of factors including its size – Wesfarmers has a market capitalisation of $49 billion; its ownership of the Coles supermarket empire; its ownership of one of the greatest retailing businesses in Australia – Bunnings; its strong balance sheet which has been helped by well-timed sales of assets; and its ownership of a range of assets including energy, chemicals and fertilisers.
The company recently held its annual Strategy Briefing Day which is a highlight of the corporate calendar for many investors; here are five key takeaways from that event:
1. Operationally sound: Not only are key management personnel highly regarded but Wesfarmers' organisational structure is too. Key features include a lean corporate office, an ability to fill key roles with internal talent, a business development team focused on the evaluation of value adding transactions and significant capex, and an improved safety performance across the group.
2. Long-term outperformance: Since November 1984 when the group listed on the ASX, Wesfarmers has produced a staggering compound annual total shareholder return (TSR) of 20.9%. That's an outstanding achievement and is nearly double the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO), which has averaged 11.3% over the same period.
3. Focussed on what matters: Unfortunately, it's rare to find a company that clearly acknowledges and understands what drives long-term shareholder value. Thankfully, Wesfarmers does understand. Here's a list that management is focussed on: improving returns on invested capital; growing dividends over time; implementing effective capital management; investing above the cost of capital; utilising financial discipline.
4. Not growth for growth's sake: While some companies focus on growing their top line sales at all costs, Wesfarmers acts much more prudently and focuses on growth in revenue that will drive growth in cash flow. Over the past five years, revenues have grown at a compound annual growth rate (CAGR) of 4.1%, while achieving a CAGR in net profit after tax of 8.1%.
5. Dividends: Since 2009 the group has distributed $12.9 billion to shareholders by way of dividends, special dividends and capital returns. The board has also declared a steady rise in normal full year dividends, which have grown from $1.10 in 2009 to $2 in 2014.
