As the owner of Kmart, Coles, Target, Officeworks and Bunnings Warehouse, Wesfarmers Ltd (ASX:WES) is Australia's largest retailer.
Given its diversification and scale, Wesfarmers is an integral part of many investment portfolios.
However, its potential is no secret, so the market rarely offers new investors a bargain buying opportunity. Therefore, investors wanting to own shares may need to be patient. Similarly, current shareholders have little reason to sell out now.
3 reasons to hold Wesfarmers shares
- Coles
Wesfarmers purchased The Coles Group in 2007, in the largest corporate takeover Australia had ever seen at the time. The ensuing Global Financial Crisis took its toll on the new and combined Wesfarmers, but the deal proved to be extremely successful for both shareholders and the community.
Rallying more than 108% since the depths of the GFC, the Coles Group of companies (including Coles, Kmart, and Target) was revitalised under the watch of Wesfarmers. Importantly, it's showing no sign of slowing down.
- Home Improvement
Bunnings Warehouse is the dominant force in the DIY home improvement market. It's a very lucrative business and complementary to Wesfarmers' skill set. Although the business could be expected to grow profits for a few more years, Wesfarmers recently entered the UK and Irish markets through the acquisition of Homebase.
The jury is still out on the Homebase acquisition. But given Wesfarmers' history and savvy management, long-term growth is a reasonable expectation in my opinion.
- Dividends
Wesfarmers has a market capitalisation of $45 billion. As a result, it is the biggest fish in a medium-sized retail pond. Therefore, current shareholders will primarily be seeking dividend income, along with modest capital growth. At their current price, Wesfarmers shares are expected to pay a dividend equivalent to 5% fully franked.
Foolish takeaway
At today's prices, I think Wesfarmers shares are a hold. Indeed, investors should look to buy shares below today's price while shareholders should be in no rush to sell.
