Even so, Wesfarmers has been a great ASX share to own in 2020. Despite the coronavirus pandemic, and the massive share market crash we saw in March and April, the Wesfarmers share price is up more than 11% year to date, and up 48.5% since 23 March.
But at the current share price, is Wesfarmers still a buy, either for growth or dividend income (or perhaps both)? Let’s take a look.
What does Wesfarmers do?
Wesfarmers is one of the largest retailers in the country and one of the largest companies on the ASX. It’s a massively diversified conglomerate. Most of its earnings come from the company’s retail chains like Bunnings Warehouse, Kmart, Officeworks and Target. But Wesfarmers also owns an almost dizzying array of other ventures, including mines, industrial and chemical manufacturing plants and a clothing line.
In recent years, Wesfarmers is probably most well-known for its 2018 blockbuster spin-off of Coles Group Ltd (ASX: COL), which it used to own in its own right. Today, Coles is independently listed on the ASX, but Wesfarmers still owns a 4.9% stake.
Growth or dividends?
Wesfarmers does have a reputation as a solid, ASX 200 blue-chip dividend payer. But on current prices, it offers a decent, if uninspiring, 3.3% dividend. This also comes fully franked (giving Wesfarmers a grossed-up yield of 4.71%).
That’s based on Wesfarmers’ last two dividends (interim and final), which came in at 75 and 77 cents per share (cps) respectively. Those dividends were down from the 100 cps and 78 cps interim and final dividends in 2019. However, Wesfarmers also paid out an 18 cps special dividend alongside its final dividend in August 2020. If we factor this in, Wesfarmers’ trailing dividend yield instead becomes 3.69% (or 5.27% grossed-up).
This, to me, says that Wesfarmers is a decent, if not exactly market-leading, income share to own.
But what of growth?
Wesfarmers has always been a company that is looking for the ‘next big thing’. And it’s been up to some interesting stuff in recent years. In 2019, Wesfarmers completed the acquisition of Catch Group – an online e-commerce company that has seen significant growth. Also in 2019, the company acquired lithium producer, Kidman Resources.
I like that Wesfarmers is pursuing these ventures and isn’t just sitting on its laurels. Although ventures like these would have to substantially grow to make a meaningful impact on Wesfarmers’ $52 billion market capitalisation, it’s still a good thing to see in an established ASX blue chip in my view.
I believe Wesfarmers is one of the highest calibre ASX blue chip shares, which I think any investor could own in their portfolio. I think the company offers a healthy mix of future growth opportunities together with reasonable dividend income. A top all-rounder share, Wesfarmers is a solid company in which to place your capital today in my opinion.
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Returns As of 6th October 2020
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET 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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