Hunting for passive income? Guess what you’re earning if you invested $5,000 in Wesfarmers shares last June

Hunting for passive income? Guess what you're earning if you invested $5,000 in Wesfarmers shares last June

Wesfarmers interim dividend was up 10% from the prior year, fuelled by a big leap in profits.

Bernd Struben

Author bio Bernd Struben earned his BA in economics from the University of Michigan in 1991, with post-graduate studies in environmental economics at the University of Connecticut. Over the years he’s written about and analysed the tourism industry in the Caribbean; Europe’s commercial real estate markets; and, since moving to Australia in 2010, global and Aussie share markets. Bernd studies geopolitical and macroeconomic trends, alongside sector and company specific data, to gauge what he believes could be tomorrow's best investments. In his free time, you might find Bernd at the beach with his family or working on his next science fiction novel. Areas of expertise Australian and global share markets Macroeconomic and geopolitical trends Real estate Education Economics, University of Michigan Favorite investment quote "The four most dangerous words in investing are: 'This time it's different." — Sir John Templeton

Published May 11, 2023 2:16 pm AEST

If you strip out the passive income, Wesfarmers Ltd (ASX: WES) shares will have just beaten the one-year performance of the S&P/ASX 200 Index (ASX: XJO).

Over the past 12 months, Wesfarmers shares have gained 3.8%, compared to a 2.4% gain posted by the benchmark index.

Now let's add that passive income back into the equation.

The ASX 200 retail share paid two fully franked dividends over the past year, maintaining its long track record as a reliable income stock.

Wesfarmers' board declared a final dividend of $1 per share, which hit stockholders' bank accounts on 6 October.

Wesfarmers shares delivered an interim dividend of 88 cents per share, which was paid on 28 March.

The interim dividend was up a healthy 10% year on year. That was driven by a 14% increase in the company's half-year profits, which reached $1.4 billion over the six months.

All told then, shareholders will have received $1.88 for every Wesfarmers share they hold.

At the current share price of $51.19, that works out to a trailing yield of 3.7%. Or $185 in passive income from a $5,000 investment at today's price. With potential tax benefits from the franking credits.

The dividends also help boost the accumulated gain to 7.6% over the year.

But some ASX 200 investors will be earning significantly more passive income than others.

A woman puts money in her piggy bank all rugged up for the winter cold. — Image source: Getty Images

How much passive income might Wesfarmers shares have delivered?

Like most of the market, Wesfarmers shares tumbled to one-year lows in June.

At market close on 17 June, shares were changing hands for $41.66 apiece, having dropped more than 17% over the prior four weeks.

Now it would have taken a brave, or perhaps well-advised, investor to snap up $5,000 worth of shares on that day.

Indeed, buying a stock that's been falling will often see you holding a stock that's set to fall further.

But with the benefit of hindsight, we know that's not the case for Wesfarmers shares.

If you'd bought on 17 June you would have been eligible for both of the retail company's dividend payments.

At $41.66 per share that works out to a 4.5% yield. Or a very tidy $225 in passive income from your $5,000 investment.

Not to mention the 22.9% gain in the Wesfarmers share price since that low.

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