Wesfarmers Ltd (ASX: WES) shares typically pay investors a good dividend yield. With that in mind, could it be used as a key way to generate a monthly passive income of $150?
Wesfarmers may not be a household name for many Aussies, but the company does own a number of leading retailers including Bunnings, Kmart, Officeworks, Target and Priceline.
The company summarises its operations as being the following: home improvement and outdoor living, apparel and general merchandise, office supplies, health, beauty and wellbeing, chemicals, energy and fertilisers (WesCEF), and industrial and safety products.
Wesfarmers aims to provide long-term shareholder returns to investors. With that in mind, the company says:
With a focus on generating strong cash flows and maintaining balance sheet strength, the group aims to deliver satisfactory returns to shareholders through improving returns on invested capital. As well as share price appreciation, Wesfarmers seeks to grow dividends over time commensurate with performance in earnings and cash flow. Dependent on upon circumstances, capital management decisions may also be taken from time to time where this activity is in shareholders' interests.
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How to generate $150 of monthly income
Wesfarmers doesn't pay a dividend every month, so it can't technically produce 'monthly income'. But, investors can think of the annual total as an amount that can be split up into 12 equal payments.
For a monthly income of $150, investors would need to receive $1,800 of annual dividends. That's a fair amount of cash, but achievable.
According to Commsec, Wesfarmers is expected to pay an annual dividend per share of $1.87 in FY23 and $2.20 in FY25.
Using the FY23 payment level, investors would need 963 Wesfarmers shares to get the required level of monthly income. This would come at a cost of around $47,000.
But, if the goal is to receive $1,800 of annual income by 2025, meaning $150 of monthly income, then using the projected FY25 dividend per share of $2.20, investors would only need to buy 819 Wesfarmers shares. This would come at a cost of $40,000.
Of course, I would suggest that diversification is a useful strategy. If $40,000 represents an investor's portfolio, then I'd suggest adding other (ASX) shares to lower concentration risk. An effective exchange-traded fund (ETF) could provide that diversification.
Foolish takeaway
Wesfarmers is a very effective ASX dividend share in my opinion, I think it's one of the best choices for dividends out of the large ASX blue-chip shares.
