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Is the Wesfarmers share price a buy?

Is the Wesfarmers Ltd (ASX: WES) share price a buy? It has been a real strong performer over 2019.

Since the start of the year the Wesfarmers share price has gone up 34%, making it one of the best blue chips on the ASX.

Why has it done so well? Well, some might put it down to the fact that it’s not a bank, it’s not a resource business and it offers a good yield.

Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) face a variety of issues including royal commission remediation.

Except for a bit of a retail slowdown hurting Kmart Group, Wesfarmers has not faced any big problems.

FY19 was a solid year for the company with continuing earnings before interest and tax (EBIT) rising 12.2% and continuing net profit after tax (NPAT) going up 13.5%. The key Bunnings business grew EBIT by 8.1%.

The foray into the UK may not have been successful but the leadership quickly ended the attempt so it didn’t burn too much cash. That seems like good management to me. 

The acquisitions of Kidman Resources and Catch Group make sense and can produce good synergies. Bolt-on acquisitions can be good profit drivers whilst being less risky. 

I think there’s a lot to like about Wesfarmers’ leadership and the business model. Wesfarmers seems to have the flexibility to acquire whatever business it thinks would be a good long-term fit.

Foolish takeaway

Wesfarmers is now trading at around 23x FY21’s estimated earnings with a projected grossed-up dividend yield of 5.1%.

It would have to be one of my favourite blue chips in the ASX20, particularly for dividends, but it’s certainly not cheap any more. I think there could be better shares to buy for reliable dividends and growth.

For example, I think that these leading ASX stocks could be better value than Wesfarmers and provide better dividends.

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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 National Australia Bank Limited and 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 Scott Phillips.

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