Is the Wesfarmers Ltd (ASX: WES) share price a buy for dividends?
Wesfarmers has been one of the better blue chips for dividends. We’ve seen the dividends of Telstra Corporation Ltd (ASX: TLS) and National Australia Bank Ltd (ASX: NAB) go backwards in recent times, but the Wesfarmers dividends have been solid.
As shareholders we want to see our dividends staying the same or growing each year. If you exclude the impact of the divestment of Coles Group Limited (ASX: COL), Wesfarmers dividend will hopefully keep going up over the long-term. I like that management are willing to pay special dividends too as a way to reward shareholders.
The Wesfarmers business has changed quite substantially over the past couple of years. It divested its resources assets as well as Kmart Tyre and Auto, which largely reduced it to a bricks and mortar retail business.
But recent acquisitions and moves by management are changing that. The Catch Group purchase increases Wesfarmers’ online retail presence, it is also rolling out Bunnings online. The acquisition of Kidman Resources adds an interesting lithium element to Wesfarmers’, where it can unlock useful synergies with its industrial segment.
Wesfarmers had a solid FY19 with continuing revenue growing by 4%, regular earnings before interest and tax (EBIT) increasing by 12.2% and regular earnings per share (EPS) rising by 13.5%. This result showed the value of its diversified operations because Kmart & Target didn’t have a great year. As long as earnings keep growing the dividend can keep growing too.
I like Wesfarmers as a long-term dividend idea because it is willing to change the composition of its operating businesses, whereas shares like Commonwealth Bank of Australia (ASX: CBA) and Woolworths Group Ltd (ASX: WOW) are stuck being a bank and a supermarket.
Wesfarmers is trading at over 22x FY20’s estimated earnings with a projected grossed-up dividend yield of 5.3%. Wesfarmers doesn’t look like a bad choice for dividends, but its share price has performed strongly this year – I’m not sure I’d want to buy it today for the potential total returns.
For dividends I would much rather invest in these top ASX shares for my portfolio which already have great dividend records.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited and Wesfarmers Limited. The Motley Fool Australia owns shares of National Australia Bank 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 Scott Phillips.