This is the ASX blue-chip share I'd buy for dividend income

Here's why I love this stock for payouts.

| More on:
Woman smiling with her hands behind her back on her couch, symbolising passive income.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Wesfarmers Ltd (ASX: WES) is one of the biggest companies in Australia, with a market capitalisation of $72 billion. In my opinion, it's a leading ASX blue-chip share for dividend income.

I think most readers will have heard of the main brands within this company, including Bunnings, Kmart, Officeworks and Priceline.

While these are high-quality businesses, it's the dividend potential that I'm going to talk about. For starters, I think many of Wesfarmers' businesses have proven to have resilient earnings in almost all conditions.

Is Wesfarmers a good option for dividends?

As a reminder, no dividend is guaranteed – it's not like a term deposit or savings account.

Dividends are paid from profits generated by the company. The board of directors decides the size of the dividend.

The ASX blue chip share's main objective is "to provide a satisfactory return to shareholders".

Within that goal, the company aims to continue to invest in its businesses where capital replacement opportunities exceed return requirements, acquire (or divest) businesses that are expected to increase long-term shareholder wealth and manage its balance sheet.

When it comes to paying dividends, the company objectives are:

As well as share price appreciation, Wesfarmers seeks to grow dividends over time commensurate with performance in earnings and cash flow. Dependent upon circumstances, capital management decisions may also be taken from time to time where this activity is in shareholders' interests.

Wesfarmers has grown its annual dividend more often than not in the years since the GFC. It has grown its dividend each year since the onset of COVID-19.

Is it a good time to buy?

The recent strength of the Wesfarmers share price has pushed the dividend yield lower, for now.

According to the projection on Commsec, the company could pay an annual dividend per share of $1.95, which translates into a grossed-up dividend yield of 4.3%.

The business continues to generate impressive revenue and profit performance, despite the broader economic conditions being a headwind.

Over the long-term, I believe Wesfarmers will be able to keep growing its dividend thanks to the strength of existing businesses like Bunnings and Kmart, the potential new businesses it might acquire (such as in the healthcare sector) and its sound management decision-making.

The Wesfarmers share price is not as cheap as it was, but at 24x FY26's projected earnings (according to Commsec), the ASX blue-chip share is still at an attractive price for the long-term, in my opinion.

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.

More on Blue Chip Shares

Seven men and women of different ages and nationalities put their heads together and smile as they look down at the camera.
Blue Chip Shares

2 ASX shares I'd buy to quickly add diversification

I like these stocks for Aussies wanting different blue-chip exposure.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Blue Chip Shares

Buy these fantastic blue chip ASX 200 shares in April

Analysts have put buy ratings on these high quality blue chips.

Read more »

Person holding a blue chip.
Blue Chip Shares

2 ASX blue-chip shares I'd buy with $3,000 right now

These are large businesses with compelling futures.

Read more »

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.
Blue Chip Shares

Why this could be one of the best blue chip ASX shares to buy right now

Morgans sees this blue chip as a best idea for investors right now.

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Blue Chip Shares

Buy these ASX 200 blue chip shares for big returns

Analysts think these blue chips could be in the buy zone according to analysts.

Read more »

A couple are happy sitting on their yacht.
Opinions

Top ASX shares to buy instead of a term deposit in March 2024

You may have to weather the odd storm, but the long-term investment outlook looks fine!

Read more »

Happy woman looking for groceries. as she watches the Coles share price and Woolworths share price on her phone
Blue Chip Shares

Why Coles shares could be a best buy for blue chip investors

Bell Potter thinks Coles is the best supermarket to buy this month.

Read more »

Three excited business people cheer around a laptop in the office
Blue Chip Shares

2 powerful blue chip ASX 200 shares to buy for your portfolio

Analysts think these high-quality companies could give your portfolio a big boost.

Read more »