Is the Wesfarmers Ltd share price a buy?

The Wesfarmers Ltd (ASX:WES) share price has been a very good long-term investment, is it a buy today?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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).

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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »