Why today is a good day to own Wesfarmers shares

Shareholders of the Bunnings and Kmart owner will be smiling today.

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a smiling woman sits at her computer at home with a coffee alongside her, as if pleased with her investments.

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It certainly is a good time to have Wesfarmers Ltd (ASX: WES) shares in your portfolio.

The conglomerate's shares are up an impressive 36% over the last 12 months.

This means that if you had invested $20,000 into the Bunnings owner's shares a year ago, your investment would be worth over $27,000 today.

But it gets better. Today is payday for eligible Wesfarmers shareholders, with its latest dividend being dished out on Wednesday.

It's a good day to own Wesfarmers shares

Last month, Wesfarmers released its half-year results and impressed the market with a stronger than expected performance.

For the six months, the company reported a 0.5% increase in revenue to $22,673 million. This was driven largely by a 1.7% increase in Bunnings revenue and a 7.8% jump in Kmart Group revenue.

Things were better for its net profit after tax, which grew at a quicker rate of 3% to $1,425 million. This was the result of a very strong performance by the Kmart Group business, which posted a 26.5% increase in earnings for the six months. Management highlights that this reflects the positive customer response to Kmart's lowest price positioning.

In light of this positive form, the Wesfarmers board elected to increase its fully franked interim dividend by 3.4% to 91 cents per share.

It is this dividend that is being paid out to eligible shareholders today.

Going back to our original example. If you'd bought $20,000 worth of Wesfarmers shares a year ago, you would own 400 units today.

This means that you would be receiving a very welcome pay check of $364 today.

Where next for its shares?

Unfortunately, all the major brokers believe that Wesfarmers shares have now pushed beyond fair value and are in overvalued territory.

The most bullish out there is Morgans with its hold rating and $62.30 price target. This implies potential downside of 7% from current levels.

Motley Fool contributor James Mickleboro 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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