3 reasons to watch out for Wesfarmers Ltd shares

Photo credit: AS 1979

Wesfarmers Ltd (ASX: WES) shares look a little expensive today, but remain a good long-term prospect. That means if you’re prepared to pay the arguably higher price today, you must:

  1. Expect Wesfarmers to continue growing healthily; and
  2. Be willing and able to stay invested in the shares for many years.

The second part is easier said than done.

Here are three reasons to keep Wesfarmers shares fixed on your watchlist or, if you are willing to buy today, in your portfolio.

  1. Quality brands

Wesfarmers is the quintessential blue chip stock. That means if you had to name 10 Australian blue chips, chances are, Wesfarmers would be one of them. Wesfarmers is the owner of popular consumer and retail names such as Coles, Kmart, Target, Bunnings Warehouse, Officeworks and more. It also has operations in other (non-core) sectors, such as resources.

  1. Growth

Wesfarmers is more than 100 years young, but that hasn’t stopped it incrementally growing sales and profit year-in-year-out. The company’s long-standing and experienced management team have campaigned well against rivals Woolworths Limited (ASX: WOW) and Metcash Limited (ASX: MTS) for many years. It now appears best placed to deal with competition from the likes of Aldi and Costco. So although it is far from a gangbusters growth stock, it’s certainly not void of growth, either.

  1. Dividends

Wesfarmers has a strong track record of paying surplus cash out to shareholders in the form of dividends. Wesfarmers’ shares currently trade on a forecast dividend yield of 4.9% fully franked. For eligible shareholders, those tax-effective franking credits increase the gross payment to an impressive 7%.

Foolish takeaway

Wesfarmers is one of strongest ASX-listed blue chip companies with a stable of quality brands and attractive shareholder characteristics. However, its quality is no secret. Therefore, investors must be willing to pay a premium to its intrinsic worth for a slice of the cake.

Personally, I'd rather look for other - faster growing - dividend shares to add to my portfolio, such as the one The Motley Fool's expert analysts hand-picked as their best dividend share idea for 2016.

Indeed, our resident dividend experts named their Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is growing and trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

 The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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