The BIG reason to buy Wesfarmers Ltd shares today

Wesfarmers Ltd’s (ASX: WES) share price looks like it could be about to hit a new 52-week high any day now but don’t let that dissuade you from considering the investment merits of this top blue-chip company.

There’s one BIG reason Wesfarmers could still be worth buying even at these prices…

Unlike its supermarket peer Woolworths Limited (ASX: WOW) which is completely dependent on its retail operations, Wesfarmers is a diversified operating group which has many different drivers for the group’s overall earnings.

In this sense Wesfarmers has similarities to Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and even to Warren Buffett’s Berkshire Hathaway in that they all utilises a conglomerate structure. Interestingly, despite the phenomenal returns achieved at Berkshire and the double-digit total shareholder returns Wesfarmers and ‘Soul Patts’ have produced for the past decade, there are very few ASX-listed companies which utilise this diversified structure.

Wesfarmers owns leading retail brands including Coles, Bunnings and Officeworks; the stock is also trading on a forecast FY 2015 fully franked dividend yield of 4.8%. These are appealing attributes but there is an even BIGGER reason to be excited about Wesfarmers.

What’s really exciting for shareholders is the massive amount of cash flowing into the company thanks to the sale of its insurance businesses including the $1.8 billion sale of its underwriting operations to Insurance Australia Group Limited (ASX: IAG).

Tallied up, Wesfarmers has made around $3 billion in asset sales over the past year and there are plenty of ways that money could be put to good use. Options could include a capital return or special dividend which would certainly be nice for shareholders, however an even better use of the funds would be a value accretive acquisition or organic growth initiatives which could create substantial shareholder value and drive earnings growth into the future.

Have you bought The Motley Fool's Top Stock for your portfolio yet?

Wesfarmers' share price is up 83% in the past five years but there could be plenty more growth ahead for shareholders if management can put the cash pile to good use! I'm excited about Wesfarmers but its a very large company so fast growth won't be easy. That's also why I'm even more excited about what could be the 'story stock' of 2014! Get The Motley Fool's #1 pick now in our newly updated investment report. It's yours FREE. Simply click here for your copy of "The Motley Fool's Top Stock for 2014."

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.