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