Wesfarmers Ltd (ASX: WES) is one of the leading businesses for potential passive income in my opinion. But, is the right time to buy?
I think it's important to recognise that there can be a difference between how good a business is and whether it's a good time to buy its shares.
Over the past five years, BHP Group Ltd (ASX: BHP) has been one of the best and biggest dividend payers in the world. But, the BHP share price has been very volatile. There can be attractive times to invest in the company, and times when it'd be wise to stay on the sidelines.
While I don't think Wesfarmers shares are as cyclical as BHP's, I think it's just as worthwhile to question their price.
Interestingly, the Wesfarmers share price is slightly up over the past 12 months, despite higher interest rates, though it is still down more than 20% since August 2021. The Wesfarmers share price has risen by more than 10% in 2023 to date.
Is now a good time to buy Wesfarmers shares for passive income?
I'd always like to buy my target investments at an even cheaper price. If I had a crystal ball, it'd be able to tell me whether the negativity surrounding higher interest rates is going to hurt Wesfarmers' share price or the company's profit in the next 12 months.
But we don't know what's going to happen next, so we can only judge whether the current investment is good or not.
According to Commsec, the Wesfarmers share price is valued at 23x FY23's estimated earnings based on an earnings per share (EPS) prediction of $2.16. By FY25, EPS is expected to rise to $2.49.
The dividend is expected to come in at $1.87 per share in FY23, $1.94 per share in FY24, and $2.19 per share in FY25.
That looks like attractive passive dividend income growth in 2023 and beyond. The current projected grossed-up dividend yield for FY23 is 5.3%. That looks like a solid yield to me and comfortably more than what investors might be able to get from a term deposit.
I think it's a quality business
I think that Bunnings, Kmart, and the Wesfarmers chemicals, energy and fertiliser (WesCEF) business are three of the best businesses in Australia. The fact that they continue to invest and grow is a very positive sign in my opinion. Ongoing population growth in Australia is a useful tailwind for Wesfarmers' earnings. Strong commodity prices are helpful for WesCEF. I think the future looks bright for the company.
It'd have been more rewarding to buy Wesfarmers shares at a price of under $43 last year. However, I think Wesfarmers will be able to keep growing profit for years to come. But there could be a time that the Wesfarmers share price goes down to a more attractive level during 2023.
Wesfarmers share price snapshot
Over the past month, Wesfarmers shares have risen by 2%.
