Should income investors buy Wesfarmers shares for the dividends?

Is Wesfarmers a top option for income investors?

| More on:
A man rests his chin in his hands, pondering what is the answer?

Image source: Getty Images

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

Unfortunately for its shareholders, the Wesfarmers Ltd (ASX: WES) share price has been out of form in 2022.

Since the start of the year, the conglomerate’s shares have lost a disappointing 27% of their value.

Is the Wesfarmers share price weakness a buying opportunity for income investors?

According to a recent note out of Morgans, its analysts are positive on Wesfarmers and believe recent weakness has created a buying opportunity for investors. Particularly given the quality of its retail portfolio and strength of its management team.

Morgans currently has an add rating and $58.40 price target on the conglomerate’s shares.

So, with the Wesfarmers share price last trading at $43.67, the broker’s price target suggests potential upside of almost 34% for investors over the next 12 months.

Its analysts commented:

WES possesses one of the highest quality retail portfolios in Australia with strong brands including Bunnings, Kmart and Officeworks. The company is run by a highly regarded management team and the balance sheet is healthy. While COVID-related staff shortages are proving to be a challenge, the core Bunnings division (>60% of group EBIT) remains a solid performer as consumers continue to invest in their homes. We see the pullback in the share price as a good entry point for longer term investors.

What about Wesfarmers’ dividends?

Morgans is forecasting Wesfarmers to pay a fully franked dividend of $1.65 per share in FY 2022. It then expects the company to increase this to $1.81 per share in FY 2023.

Based on the current Wesfarmers share price, this equates to yields of 3.8% and 4.15%, respectively, over the next two financial years.

All in all, this stretches the total potential return on offer with the Bunnings owner’s shares to a very attractive 38%.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A man smiles as he holds bank notes in front of a laptop.
Dividend Investing

Goldman Sachs names 2 ASX dividend shares to buy

Goldman Sachs has named these dividend shares as buys...

Read more »

Broker looking at the share price on her laptop with green and red points in the background.
Dividend Investing

2 ASX 200 dividend shares analysts rate as buys

Here are two ASX 200 dividend shares rated as buys....

Read more »

An ASX dividend investor holds a fanned out bunch of $40 Australian cash notes and wonders whether any ASX lithium shares pay dividends
Dividend Investing

Brokers name 2 ASX dividend shares to buy now

Here are two top dividend shares that brokers say are buys...

Read more »

A woman looks quizzical while looking at a dollar sign in the air.
Dividend Investing

Will Kogan shares ever pay a dividend again?

When are the online retailer's dividends coming back? Let's take a look.

Read more »

A smiling woman with a handful of $100 notes, indicating strong dividend payments
Dividend Investing

Here are top 2 ASX dividend shares with growing yields

These dividend shares are expected to grow nicely in the coming years...

Read more »

Woman holding $50 notes and smiling.
Dividend Investing

Should investors buy Bendigo Bank shares for dividends?

With its high dividend yield, is Bendigo Bank actually the best bank for income?

Read more »

A sophisticated older lady with shoulder-length grey hair and glasses sits on her couch laughing while looking at her ASX 200 shares rising on her phone
Dividend Investing

Experts name 2 ASX dividend shares to buy next week

These dividend shares have been rated as buys...

Read more »

A mature aged man with grey hair and glasses holds a fan of Australian hundred dollar bills up against his mouth and looks skywards with his eyes as though he is thinking what he might do with the cash.
Dividend Investing

Everything you need to know about the latest IAG dividend

What are the details surrounding IAG's latest dividend?

Read more »