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Wesfarmers Ltd’s $1 billion capital return and distribution: What you need to know

Retailing and industrial conglomerate Wesfarmers Ltd (ASX: WES) recently reported a strong full year result and capped the good news off by announcing a $1 billion capital management distribution plan for shareholders.

A final dividend of $1.05 was declared in addition to a 10 cent per share “centenary” special dividend to celebrate being in business for over 100 years.

A special distribution was also declared, due in part to the strong cash flow generated during FY 2014. Wesfarmers also enjoyed the proceeds of selling its insurance businesses.

For shareholders and investors interested in buying stock in Wesfarmers, here is what you need to know about the special distribution.

Distribution components:  The capital management distribution will be an extra $1 per share. 65% – 75% of the $1 is expected to represent the capital component. The remaining balance will be a fully-franked dividend component.

The capital component is subject to shareholder approval. In addition, it will be dependent on a ruling from the ATO. It is expected the ATO ruling in relation to taxation treatment will be received before the AGM on 20 November when shareholders will consider the proposal.

Receipt of distribution: If all conditions are met, shareholders are expected to receive payments in December 2014.

Capital component conversion ratio: The share consolidation’s conversion ratio will reflect the size of the capital component. The ratio will be based on the volume weighted average sale price of Wesfarmers’ shares over the consecutive 20 trading day period ending 18 August 2014, which is $43.29.

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Wesfarmers' stock is about $44.70 and has a dividend yield of 4.3% fully franked. Its Coles supermarkets, Bunnings Warehouse and Officeworks businesses had solid gains in FY 2014. The company has raised dividends annually for the past five years and could be a steady income stock for your portfolio into the future.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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