The Motley Fool

Is it time to buy Wesfarmers Ltd shares?

The Wesfarmers Ltd (ASX: WES) share price leaves a lot to be desired.

Who is Wesfarmers Ltd?

As a $51 billion Australian company, most people would have heard of the name, Wesfarmers, but may not know what exactly it does.

Wesfarmers is the owner of Coles, Bunnings Warehouse, Kmart, Target, Officeworks, and an industrials and coal mining business.

Here’s the breakdown of Wesfarmers’ sales:

Wesfarmers sales

Data source: Wesfarmers Half Year Report

As can be seen, the company’s Coles business is the primary sales generator. However, given that most of Wesfarmers’ businesses are retailers (read: volume businesses — selling many products at slim profit margins) it’s worth looking at the company from the perspective of pre-tax profits rather than sales.

Wesfarmers profit

Data source: Wesfarmers Half Year Report

As can be seen, Bunnings Warehouse plays a big part when it comes to Wesfarmers’ bottom line (a.k.a profit). That’s because it generates better profit margins on its products.

What’s good about Wesfarmers?

Wesfarmers makes up a large chunk of Australian investors’ share portfolios because of its defensive qualities. If you lose your job, you’ll still need to buy bread or fruit from Coles. If you need a kettle or bowls for the house, you’ll still shop at Kmart.

Wesfarmers is a very well-run business, too. And when good management combines with a good business, you are more likely than not to get decent shareholder returns (dividends and capital gains) — if you pay a sensible price.


While Wesfarmers is a great business, it is not immune from its fair share of risks. Some might argue that Bunnings is a cyclical business or that its venture into the UK could create unnecessary risks for the company. In supermarkets, Woolworths Limited (ASX: WOW) and Aldi have something to prove. A price war wouldn’t be good news for Coles.


Smart investing requires us to balance the risks with the potential return. In my opinion, there is a lot to like about Wesfarmers but its shares are simply too expensive for me to justify an investment. When it comes to blue chip companies like Wesfarmers, shares rarely trade materially below their intrinsic value. Therefore, it’s paramount to remain patient.

That’s what I’m doing.

If you want a great dividend-paying stock to buy today, you should read this report, which our analysts just compiled on a top dividend stock.

A Big, Fat, Fully Franked Dividend

This company’s dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

Discover the name of this “new breed” of blue chip along with 2 others in our new FREE report "The Motley Fool’s Top 3 Blue Chips Stocks For 2017."

Click here to receive your copy.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

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.

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now