Why Wesfarmers Ltd looks to have a bright future

At Wesfarmers Ltd’s (ASX: WES) annual Strategy Day today, the conglomerate has spelled out over the space of a 251-page presentation its future plans.

The presentation doesn’t seem to have caused too much of a stir amongst investors with the share price losing a few cents on what is a relatively quiet day of trade for the ASX – the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up around 0.3%.

As one of Australia’s largest blue-chip companies, shareholders naturally expect the company to be a safe and defensive place to invest. Pleasingly the Strategy Day not only re-confirmed this but also reminded investors that Wesfarmers has growth opportunities and that management will act prudently with shareholder funds.

Cash, Cash and more Cash

Blue chip stocks need to have fortress-like balance sheets so that they can withstand unforeseen turbulent times, such as the GFC. The sale of Wesfarmers’ underwriting operations to Insurance Australia Group Limited (ASX: IAG) for $1.8 billion, coupled with further asset sales should see around $3 billion flow into the corporate bank account over the coming months. With debt on the balance sheet of $5.6 billion and equity of approximately $26 billion, Wesfarmers is in a solid financial position.

Market Leader

While Coles does have to battle it out with Woolworths Limited (ASX: WOW) in supermarkets, other divisions enjoy clear market leadership positions.  Bunnings in particular is a top class retailer and the upstart Masters would appear to pose little risk – if anything Masters is more likely to cannibalise Metcash Limited’s (ASX: MTS) Mitre 10.  


Investors in blue chip stocks also want to receive reliable dividend payments. In the current year, Wesfarmers is forecast to pay-out 193 cents per share (cps) which equates to a fully franked dividend yield of 4.4%. The news gets better with the forecast rising to 208.5 cps in 2015 and some analysts tipping a capital return as well.

Add some ZOOM to your blue-chip portfolio

The foundation of most portfolios is built upon solid blue-chip stocks such as Wesfarmers. It's a sensible strategy but you should also consider adding stocks with greater growth potential too, like this stock which has a grossed-up yield of 7%... plus double-digit profit growth!

NEWLY UPDATED. The Motley Fool's top dividend stock for 2014 offers growing sales, accelerating profits and a grossed up dividend yield of 7%! Find out the name and code right now -- your copy of "The Motley Fool's Top Dividend Stock for 2014" is FREE. Simply click here!

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.