ANZ Group Holdings Ltd (ASX: ANZ) shares may be well-known for paying investors big dividends, but there are other ASX dividend titans that I'd rather invest in. I'm going to tell you about Wesfarmers Ltd (ASX: WES) shares in this article.
ANZ is one of the biggest ASX bank shares around, with a market capitalisation of $71 billion according to the ASX. But Wesfarmers is very large as well, with a market capitalisation of $56 billion.
The ASX bank share makes its money largely by lending to households and businesses.
Wesfarmers has a variety of different businesses that make money including Bunnings, Officeworks, Kmart, Target, Priceline, Wesfarmers chemicals, energy and fertilisers (WesCEF) and a few industrial businesses.
Why I'm not sold on ANZ shares as an ASX dividend titan
ANZ could pay a large dividend yield in FY23. On Commsec, the projected annual dividend per share is $1.62, which implies a forward grossed-up dividend yield of 9.7%.
However, there may be very little growth in the dividend after that. That's my main concern with ANZ as an ASX dividend share – there's no growth. It paid a similar level of dividend between FY13 to FY19. FY20 saw a big dividend cut when times got tough during COVID-19.
A large but stable dividend becomes worth steadily less as inflation takes annual nibbles into what a dollar is worth.
ANZ is facing a lot of competition in the banking space as each lender tries to protect and increase their market share. This could limit ANZ's lending profitability, in terms of its net interest margin (NIM) in the short-term and longer-term.
Wesfarmers credentials as a passive income play
Following the demerger of Coles Group Ltd (ASX: COL), Wesfarmers' net profit and dividend have done well. As part of its approach to achieving satisfactory long-term returns for investors, Wesfarmers says:
As well as share price appreciation, Wesfarmers seeks to grow dividends over time commensurate with performance in earnings and cash flow.
I think it's very promising for shareholders that the company is actively targeting dividend growth, which is one of the main reasons why it's promising as an ASX dividend titan.
Its results have been impressive to me. In the FY23 first-half result, we saw Wesfarmers' earnings per share (EPS) climb by 14% to $1.22, while the dividend was increased by 10% to 88 cents per share.
To me, the businesses of Bunnings, Kmart and Officeworks have stronger competitive advantages than what ANZ does in banking, partly due to the limited number of sizeable rivals for the Wesfarmers businesses.
Wesfarmers has numerous ways it can re-invest some of its generated profit. It can expand existing businesses, make bolt-on acquisitions (such as Beaumont Tiles) or go for entirely new businesses through acquisitions. ANZ is seemingly stuck being a bank with limited growth opportunities.
In the last few years, Wesfarmers expanded into lithium with its Mt Holland stake acquisitions, acquired Priceline to start a healthcare division, and recently announced the acquisition of digital healthcare businesses InstantScripts.
Wesfarmers is expected to pay a grossed-up dividend yield of 5.5% in FY24. This dividend could keep rising, particularly once Mt Holland is fully operational and the retail environment improves from the current uncertainty, at some point down the line.
With its diversified businesses, an intention to grow the dividend and strong market positions with its retailers, I believe the company can be an ASX dividend titan for many years to come.
