The Wesfarmers Ltd (ASX: WES) 5.1% fully franked dividend yield is tempting.
After all, bank term deposits are offering a measly 2.5% (fully taxed), if you are lucky.
Who is Wesfarmers Ltd?
Wesfarmers is the name behind some of Australia's most popular retail brands, including:
- Coles
- Bunnings Warehouse
- Officeworks
- Kmart
- Target
It also has an industrials business, which includes a resources operation.
Here's how sales are split across the Wesfarmers group:
Wesfarmers believes much of its success can be owed to its 'conglomerate' style structure, whereby each business operates independently and helps the overall company weather pockets of weakness.
In terms of dividends, its structure and management have rewarded shareholders with a consistent income stream. Currently, the company is forecast to pay a dividend equivalent to a yield of 5.1% fully franked.
Franking, also known as franking credits, are a tax-effective benefit for eligible Australian shareholders. Basically, the Australian tax office (ATO) credits a percentage of tax against your tax file number so that when you file a tax return it offsets your tax payable.
Wesfarmers' dividend is fully franked, meaning the credits attached to its dividend are at 30% (the company rate of tax) of the total dividend.
Ultimately, Wesfarmers' comparable after-tax dividend yield is around 7.3%. Pretty neat, huh? Compare that to term deposits.
Buy, Hold or Sell Wesfarmers
There's no denying Wesfarmers is a quality business and pays a hefty dividend. However, I think its shares are a little too expensive to justify a buy rating. You could do far worse than own Wesfarmers shares today, mind you. But for my money, I think there are better dividend stocks available on the ASX right now.
