With all the promise of the new year ahead, just how much would I need to invest in Wesfarmers Ltd (ASX: WES) shares to earn $5,000 a year in passive income?
While Wesfarmers isn't among the highest-yielding stocks, the S&P/ASX 200 Index (ASX: XJO) retail share is popular among passive income investors for its lengthy track record of paying two fully franked dividends a year. Even during the 2020 pandemic market panic.
With its subsidiaries including names like Bunnings Warehouse, Kmart Australia, Officeworks and Priceline, Wesfarmers portfolio offers significant diversity.
Which brings us back to our headline question.
Tapping Wesfarmers shares for passive income
When you're looking at how much passive income a stock may pay in the years ahead, you can look at trailing yields or forecast yields.
Neither, of course, is guaranteed.
Trailing yields are backwards looking. Future yields may be higher or lower depending on a range of company-specific and macroeconomic factors.
Forecast yields are just that. Forecasts. Even the best analysts won't always get these right.
With that said we'll look at both trailing and forecast yields for Wesfarmers shares to get an idea of just how much I'd have to invest today for $5,000 a year in passive income.
Starting with trailing yields, Wesfarmers paid an interim dividend of 88 cents per share on 28 March. The final dividend of $1.03 per share would have hit eligible investors' bank accounts on 5 October.
That equates to a full year's passive income payout of $1.91 a share.
At yesterday's closing price of $57.10, Wesfarmers shares trade on a fully franked trailing yield of 3.3%, with potential tax benefits from those franking credits.
Based on this, I'd need to buy 2,618 shares, for $149,488, to earn me my $5,000 a year in passive income, plus a little pocket change.
Turning to the forecast yields, Wesfarmers shares are expected to again deliver $1.91 each in dividends in FY 2024, according to CommSec. Meaning my 2,618 share purchase should indeed see me earn $5,000 in passive income for the year ahead.
Looking further ahead, CommSec forecasts Wesfarmers shares will pay out $2.15 apiece in dividends in FY 2015. If that forecast proves accurate, that should see me earning $5,629 of passive income from this ASX 200 retail share in 2015.
Plus, of course, I'll be hoping my Wesfarmers stock goes up in time.
The Wesfarmers share price has gained 22% over the past 12 months.
