Wesfarmers Ltd (ASX: WES) shares may be one of the top S&P/ASX 20 Index (ASX: XTL) ASX dividend shares for income. It's a leading ASX blue-chip stock with a market capitalisation of $54 billion according to the ASX.
The business is the owner of some of the country's leading retail brands including Bunnings, Officeworks, Kmart, Target, Priceline, and Catch.
It also used to be the owner of Coles Group Ltd (ASX: COL), but it divested the supermarket business a few years ago. Owners of Wesfarmers shares received Coles shares when the split happened, so long-term shareholders are now getting dividends from both Wesfarmers and Coles.
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Wesfarmers is committed to dividends
The blue-chip stock says that the primary objective of Wesfarmers is to provide a "satisfactory return to its shareholders through financial discipline and exceptional management of a diversified portfolio of businesses."
Wesfarmers says that "as well as share price appreciation, Wesfarmers seeks to grow dividends over time commensurate with performance in earnings and cash flow".
In the company's FY22 result, despite the tricky trading conditions, Wesfarmers grew its total dividend per share by 1.1% to $1.80 per share.
For cash flow generation, the ASX 200 dividend share wants to employ "excellent management teams who are empowered to drive long-term earnings growth. This is achieved through deploying best practice principles in operational execution and maintaining a long-term focus in regards to strategy and results."
Wesfarmers says it is constantly looking to improve the working capital efficiency of all its businesses while ensuring "strong discipline" for its capital expenditure.
Being prudent with its money and trying to achieve good results has played out well for the business and the Wesfarmers share price over the long term.
Approach to investments
One of the most compelling things about Wesfarmers' dividend prospects is that its portfolio regularly evolves to be more future-focused.
For example, it recently acquired the business Australian Pharmaceutical Industries (API). This enables the business to start a new division called Wesfarmers Health which is exposed to long-term tailwinds, including Australia's ageing demographic.
Within its chemicals, energy, and fertilisers business, it's investing in a lithium mining operation called Mt Holland. This could produce good cash flow for the business in the future years.
The company says that it seeks to "invest in group businesses where capital investment opportunities exceed return requirements".
It also looks to "acquire or divest businesses where doing so is estimated to increase long-term shareholder wealth".
When reviewing the acquisition, it looks at a number of filters: megatrend exposure, industry structure, industry scale, competitive position, how it fits into Wesfarmers, the long-term investment horizon, discipline in financial projections, and risk-adjusted hurdle rates.
By combining a strong performance from its existing businesses, organic growth, and the occasional acquisition, Wesfarmers can hopefully grow its profit and dividend over the long term.
Expected future Wesfarmers dividends
Dividends and growth are not guaranteed from the blue-chip stock. But, Commsec numbers suggest that's exactly what the business may achieve in the next two financial years.
According to Commsec, the business is going to pay an annual dividend per share of $1.825 in 2023 and $1.895 in 2024. This translates into forward grossed-up dividend yields of 5.5% and 5.75% respectively.
