Is the Wesfarmers Ltd share price a buy?

The Wesfarmers Ltd (ASX: WES) share price has grown by around 300% since the start of 2000. It’s one of the oldest businesses on the ASX, having been founded in 1914.

Conglomerates are going out of fashion these days, but Wesfarmers has shown it can still be a profitable way of doing things as long as the business owns the right subsidiaries.

Wesfarmers owns a variety of businesses including Coles, Kmart, Officeworks, Target, Bunnings, Homebase in the UK and a few industrial businesses.

Management have made a shift to retail businesses over the last decade or two, which has served the company well with Australia’s recession-less growth over the past two decades. However, there has been talk that Wesfarmers is looking to offload some subsidiaries.

Target has been struggling for several years, even though management have been implementing a turnaround strategy. In Wesfarmers’ first quarter of FY18 sales update it was revealed that Target’s sales declined by a further 6.4% compared to the prior corresponding period.

In the same update it was revealed that Coles total sales (including convenience stores) were down 0.3%, Bunnings Australia & New Zealand sales were up 11.5%, Bunnings UK sales were down 17.5%, Kmart sales were up 6.4% and Officeworks sales were up 7.8%.

Management have been considering offloading various parts of the business in recent times. Wesfarmers announced a few weeks ago that it would sell its Curragh coal mine in Queensland for $700 million, which also includes a value share mechanism linked to coal prices.

Management have also looked at offloading Officeworks. Or perhaps listing Officeworks, Kmart and Target as a separate retail entity.

Raising cash for these assets which may not have a growing future is a good idea and can be put towards other growing businesses such as a new acquisition.

Wesfarmers has been a solid dividend stock for shareholders for a number of years, growing the dividend every year since the GFC. It currently has a grossed-up dividend yield of 7.15%. This is a lot more attractive than a term deposit, that’s for sure.

Foolish takeaway

Wesfarmers is currently trading at 18x FY18’s estimated earnings, which I think is better value than Woolworths Limited (ASX: WOW), which is trading at 21x FY18’s estimated earnings.

I don’t think Wesfarmers is a buy today because there are better dividend options out there, such as WAM Capital Limited (ASX: WAM).

I also think that this top dividend stock should provide much better dividends and growth than Wesfarmers over the next few years.

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Motley Fool contributor Tristan Harrison owns shares of WAM Capital Limited. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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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