Wesfarmers Ltd: A juicy capital return on the cards?

Special dividend or another juicy capital return?

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Wesfarmers Ltd (ASX: WES) could be about to richly reward shareholders with a special dividend, or return of capital again.

The conglomerate that owns supermarkets, liquor, petrol giant Coles, as well as Officeworks, Kmart, Target, Bunnings, coal, chemicals, fertiliser and a host of smaller assets, has announced that it is selling its insurance broking and premium funding operations for $1.01 billion.

Arthur J. Gallagher & Co (AJG), one of the world’s largest risk management and insurance broking companies, is buying the assets to add to the 25 countries it already operates in. While the deal still requires approval from regulators including the Foreign Investment Review Board (FIRB), it comes hot on the heels of Wesfarmers’ sale of its Australian and New Zealand underwriting businesses to Insurance Australia Group Limited (ASX: IAG) for $1.85 billion.

In December 2013, Wesfarmers also sold its 40% stake in industrial gas producer ALWA to Air Liquide for a pre-tax profit of $95 million. And back in August 2013, a sale and leaseback of 15 Bunnings Warehouse properties brought in $304 million, following an earlier sale and leaseback of 10 other Bunnings properties to BWP Trust (ASX: BWP) which realised $271 million.

With $6.4 billion in loans and borrowings at the end of December 2013, Wesfarmers may also consider accelerating the repayment of some of those debts, but the company has in the past returned capital to shareholders and paid special dividends, including a 50 cent capital return last year.

With more than $43 billion in total assets on its books, Wesfarmers could be looking at further asset sales. Those most likely to come under the microscope include its coal division, which is struggling with low and falling coal prices, its smaller chemicals and industrial equipment businesses and possibly perennial struggler Target.

The only assets Wesfarmers is unlikely to sell are Coles, Bunnings, Officeworks and Kmart. Combined they generate more than 70% of the group’s earnings, and Coles is increasingly seen as a viable competitor to Woolworths Limited (ASX: WOW).

Foolish takeaway

It’s not a guarantee, but loyal shareholders in Wesfarmers may be feeling quietly confident of receiving some nice rewards when the company reports its full year 2014 earnings in August.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

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