Wesfarmers Ltd (ASX: WES) shares are trading over 1% higher today, in line with the gains in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). Over the past 12 months however, the conglomerate's performance hasn't been as impressive with Wesfarmers' share price gaining just 3.6%, compared with an 8.1% gain in the index.
Historically it is often the laggards of the previous year that go on to outperform in the next year. Although this is certainly not a hard-and-fast rule, in Wesfarmers' case there are reasons to believe this could occur. Here are three reasons to keep holding your stock…
1) Retail sales
In many ways Wesfarmers is a retailer above all else these days. Unlike many retailers which operate and are exposed to the discretionary retail market, Wesfarmers' businesses including Coles, Bunnings and Officeworks are more skewed towards non-discretionary consumers and also towards the price-conscious consumer too. These segments of the retail market offer investors a steadier growth profile and more reliable stream of earnings.
2) Turnaround play
While undoubtedly retailing is the largest determinant of Wesfarmers' fortunes, its other operating divisions shouldn't be forgotten about. With operations which span chemicals, fertilisers, coal, and industrial and safety product distribution, the group is exposed to numerous other industries all of which are suffering from reduced demand at present. If and when revenues and earnings increase for these divisions, there is the potential for a meaningful increase in overall group profit.
3) Yield play
With Wesfarmers' forecast to pay a dividend totalling 208.5 cents per share in FY 2015, the stock is trading on a fully franked yield of 4.8%. Given that a number of economists are suggesting the high rate of unemployment, coupled with the potential for a further slowdown in China could force the Reserve Bank of Australia to lower interest rates further, investor demand for the reliable dividend stream from Wesfarmers looks set to continue.
With Wesfarmers due to report its full year results on Wednesday August 20, investors don't have long to wait to analyse the group's latest financial data including its fourth quarter retail sales which will be of particular interest. With the stock looking fully priced there wouldn't appear to be any need to rush out and buy the stock, however there are also reasons to keep holding.
