Owners of Wesfarmers Ltd (ASX: WES) shares have enjoyed a pleasing run over the past year. The Wesfarmers share price has gained around 30% despite a challenging economic and retail backdrop.
Dividends can also play an important part in returns, particularly in years when shares don't rise strongly or macroeconomic factors are challenging. Dividends are paid from a company's profits, so if profit is rising, then there is a fair chance the dividend can climb, too.
Although the size of the dividend is ultimately decided by the board of directors, Wesfarmers has stated an intention to grow its payout to investors over time.
In FY24, the retail conglomerate increased its annual dividend per share by 3.7% to $1.98, following a 3.6% increase in earnings per share (EPS) to $2.26.
FY24 is already history, so let's look at what UBS thinks the dividend payouts could be for Wesfarmers over the next five financial years.
What's the prediction for FY25?
While UBS thinks the Wesfarmers share price is expensive, the broker said it recognised that the ASX share had "strong growth options across all divisions" and was "well positioned to manage the current external environment" due to value-based retail. It also has a "strong balance sheet to fund disciplined capital deployment".
UBS has predicted that Wesfarmers' EPS can grow to $2.32 in FY25, which could fund a 3% increase in the dividend per share to $2.04. At the current valuation, the forecast translates into a grossed-up dividend yield of 4.1%.
And FY26?
In the 2026 financial year, profit growth is expected to accelerate, with EPS predicted to climb to $2.50. Hopefully, there will have been one or more interest rate cuts before the end of FY26 to give challenged households some breathing room (and possibly unlock some consumer spending for Wesfarmers).
The predicted profit growth could see the FY26 dividend per share climb by 7.75% year over year, reaching $2.50, according to UBS. This would be a grossed-up dividend yield of 5.1%.
Expectations for FY27
Further profit growth is expected in the 2027 financial year, which is an impressive run of profit growth if it comes true.
UBS expects the EPS to grow to $2.72 in FY27, which could fund a significant increase in the dividend. The Wesfarmers dividend per share could grow to $2.39, which would be a grossed-up dividend yield of 4.9%.
And FY28?
We should remember these forecasts are not guarantees, they are just predictions based on the latest information available to UBS analysts. The company's financials could be better or worse than expected.
Wesfarmers is predicted by UBS to deliver EPS of $2.92 in the 2028 financial year, which would be yet another year of consecutive growth if that occurred.
The projected profit could lead to the board of directors declaring an annual dividend per share of $2.56. This would translate into a grossed-up dividend yield of 5.2% at the current Wesfarmers share price.
Finally, FY29
The final set of these projections is very promising, too, with the company expected to see profit growth in the 2029 financial year.
It's difficult to predict what will happen five years away, as a lot can change in that time. Nonetheless, UBS has projected that the EPS can increase again to $3.11.
With the profit growth, the broker suggests Wesfarmers' dividend could grow to $2.73 per share. In that case, the grossed-up dividend yield could be 5.6%.
