Was it worth owning Wesfarmers Ltd in FY 2016?

With the 2016 financial year drawing to a close its interesting to look back and review how one of Australia’s favourite blue chips, Wesfarmers Ltd (ASX: WES) performed.

Over the 12 months to 30 June 2016, the share price of Wesfarmers gained less than 3%. For comparison, the return from the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) was a negative 4%.

Including dividends and the total shareholder return (TSR) from holding Wesfarmers’ shares improved to 6.8% according to CommSec.

While a single digit TSR is almost certainly below what shareholders were hoping for and on an absolute basis it’s not that great considering the expectation for earning an equity risk premium from owning shares however it does need to be kept in perspective.

Firstly, on a relative basis, shares in Wesfarmers did outperform the index quite significantly.

Secondly, interest rates are at historic lows which arguably reduces the hurdle rate which investors should demand and expect.

Thirdly, it’s the long term average return which counts. A 12 month holding period in isolation is simply not a period long enough to judge performance.

So was it worth owning Wesfarmers in financial year (FY) 2016?

I believe that it was, particularly for conservative investors. The stock provided fully franked dividends and outperformed the market average.

Importantly, Wesfarmers’ business operations appear to be stronger now than they were a year ago.

One important highlight from the past year would have to be the group’s strategic decision to enter the UK market via the acquisition of Homebase. The plan is to use Homebase as a springboard for Bunnings into this new market.

A key decision such as this can have significant long term consequences – hopefully positive ones – and is a major reason why a stock can’t simply be judged over an arbitrary time period.

3 Rotten Shares to Sell, and 1 to Buy Today

Now's the perfect time to upgrade the potential of your portfolio! Click on the link to discover a full rundown of 3 shares we think you should avoid today plus one top pick worth buying, even if the market turns south and the RBA keeps rates at an "emergency low." Simply click here to uncover these stocks.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. 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.

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.