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

A share market analyst looks at his computer screen in front of him showing ASX share price movements
Blue Chip Shares

Analysts name 3 strong blue chip ASX 200 shares to buy in December

Let's see which blue chips are bring tipped as buys by analysts right now.

Read more »

three businessmen high five each other outside an office building with graphic images of graphs and metrics superimposed on the shot.
Blue Chip Shares

Buy these 3 high-quality ASX 200 blue chip shares in December

Analysts think these high-quality shares are buys right now. Let's see what they are saying.

Read more »

Two people comparing and analysing material.
Blue Chip Shares

Are Woodside or CBA shares a better buy?

Here’s how I’d compare these two major ASX blue chips.

Read more »

A group of young people lined up on a wall are happy looking at their laptops and devices as they invest in the latest trendy stock.
Blue Chip Shares

Why these ASX 200 blue chip shares could generate big returns

Brokers think these shares are could be dirt cheap at current levels.

Read more »

Man sits smiling at a computer showing graphs
Blue Chip Shares

3 ASX shares Australians can buy and hold for the next decade

Analysts think these high quality stocks could be in the buy zone right now.

Read more »

2 women looking at phone
Blue Chip Shares

3 high quality blue chip ASX 200 shares to buy in November

Here are a few blue chip shares that have been rated as buys this month by analysts.

Read more »

A businessman lights up the fifth star in a lineup, indicating positive share price for a top performer
Blue Chip Shares

2 of the highest-quality blue chip ASX 200 stocks money can buy

Analysts think these blue chips are top buys for investors right now. But why?

Read more »

Three smiling corporate people examine a model of a new building complex.
Blue Chip Shares

This blue chip ASX 200 stock is 'among the highest-quality names' under coverage

Goldman Sachs thinks this blue chip is a top buy.

Read more »