The ASX dividend stock Wesfarmers Ltd (ASX: WES) is one of the most appealing businesses out of the entire ASX, in my view.
Many readers may already know that Wesfarmers owns a variety of businesses in its portfolio including Bunnings, Kmart Group, Officeworks, healthcare businesses (including InstantScripts and Priceline), chemical, energy and fertiliser businesses (WesCEF) and an industrial and safety business.
This company already owns a number of leading companies, and there is a long list of reasons why Wesfarmers is so appealing. Let's get into a few of the key aspects.
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Excellent diversification
Wesfarmers can trace its history back over 100 years, and it has changed significantly during that time.
I think the ability to change its portfolio structure is one of the most appealing things about the business.
It used to own Coles Group Ltd (ASX: COL), a vehicle service business and coal mines. But, all of those have been divested.
The ASX dividend stock didn't used to own lithium mining operations or have any exposure to healthcare businesses.
By having the flexibility to buy and sell businesses in different industries, it's able to focus its company on areas of the economy that have attractive long-term prospects. I think this will enable the business to have a promising future for decades to come.
High-quality businesses
Wesfarmers is undoubtedly one of the highest-quality retailers on the ASX, and has the numbers prove it.
Impressively, the business reported an underlying return on equity (ROE) of 31.2% in the FY25 result. ROE tells investors how much profit the business earns compared to how much shareholder money it retains.
I think the ROE is really high, in my view, for a business that generates most of its earnings from the retail industry.
A ROE above 30% is a sign of high business quality. It also implies the business could generate a strong double-digit return on money retained and invested within the business.
As long as Kmart Group and Bunnings continue to find places to invest money to help grow profit, I think Wesfarmers' net profit can continue rising.
The ASX dividend stock has a focus on shareholders
Over the years, I think Wesfarmers has proven to be very good at doing the right things for shareholders, such as ending Bunnings' expansion in the UK or regularly returning excess capital to investors.
Pleasingly, in FY25, the business grew its full-year dividend per share by 4% to $2.06. That's not bad considering inflation and high interest rates hurt household discretionary spending. The payout translates into a grossed-up dividend yield of 3.6%, including franking credits.
On top of that, the business announced a proposed capital management distribution of $1.50 per share. That's not far off being as big as the annual dividend per share.
Overall, I think the business has a pleasing outlook and is an attractive option for investors wanting long-term ASX dividend stocks that can perform in all economic conditions.
