Why I'd put Wesfarmers shares in my ultimate ASX dividend income portfolio in 2024

There are some wonderful brands within this business.

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Wesfarmers Ltd (ASX: WES) shares are definitely worth a spot in my ASX dividend income portfolio in 2024. The recent FY24 first half-year result was a real reminder of the quality of the business.

There are some wonderful businesses in the Wesfarmers portfolio such as Kmart, Bunnings, Officeworks, Priceline, InstantScripts and so on.

When it comes to ASX dividend shares, I like the idea of getting a good dividend yield. But there's more to it than just that – I want to see dividend growth over time, profit growth and the potential for more growth in the future.  

Wesfarmers shares tick all of the boxes, in my opinion.

Dividend growth

In the FY24 half-year result, Wesfarmers' board decided to increase the dividend per share by 3.4% to 91 cents. While that dividend growth isn't as strong as recent inflation has been, it's solid enough considering the business can deliver capital growth of the Wesfarmers share price.

This payment represented a dividend payout ratio of 72.3% of its net profit after tax (NPAT). I think this is a fairly generous amount, but it also leaves more than a quarter of the profit inside the business to invest for more growth.

Dividend growth is something that Wesfarmers is aiming to provide shareholders – it has grown its dividend each year since FY21.

Net profit growth

Wesfarmers pointed to Kmart as the key business that helped deliver good financial performance in the HY24 result.

Despite all of the difficulties faced in the current economic environment, Wesfarmers managed to deliver revenue growth of 0.5% to $22.7 billion, earnings before interest and tax (EBIT) growth of 1.6% to $2.2 billion and NPAT growth of 3% to $1.425 billion.

Bunnings saw total sales growth of 1.7% to $9.95 billion and generated earnings before tax (EBT) of $1.28 billion, which was a a growth of 0.3%.

Kmart saw sales growth of 7.8% to $4.88 billion and EBT grew by 26.5% to $601 million.

Wesfarmers says its strong focus on providing good value for households is resonating and enabling it to win market share.

Why I'm confident on Wesfarmers shares

The long-term for the company looks very promising. Kmart's Anko products are doing so well that it's expanding the distribution of the business into new markets globally, such as Canada.  

Bunnings is also a very strong business that is steadily growing organically and from its acquisitions, with Beaumont Tiles being one of the more recent buys.

I am a big believer in businesses having the investment flexibility to buy other companies, particularly when it diversifies their earnings. Wesfarmers has a long track record of moving into (and out of) industries if it thinks the long-term outlook is worth making a move.

For example, I really like the company's efforts to invest in healthcare because of the long-term tailwind of ageing demographics.

According to Commsec, the business could pay a grossed-up dividend yield of 4.4% and it could reach 5.3% by FY26.

I think this business is definitely worth a spot in my ultimate ASX dividend income portfolio in 2024.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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