The ASX dividend stalwart Wesfarmers Ltd (ASX: WES) should be one of the top contenders for most passive income investors.
There are three key factors I look for in dividend-paying businesses – a strong dividend yield, a rising dividend payout, and growing earnings.
Wesfarmers is the parent company of a number of businesses, including Officeworks, Kmart, Bunnings, chemicals, energy and fertiliser (WesCEF), industrial and safety, and more.
The company has been a steady presence on the ASX for many years, giving shareholders stability. Let's run through the three elements of the ASX dividend stalwart's appeal.
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Dividend yield
For investors seeking a good level of dividend income in year one, I think Wesfarmers ticks the box.
The business is predicted to pay an annual dividend per share of $2.17 in FY26, according to the forecast on CMC Markets. At the time of writing, this translates into a grossed-up dividend yield of 3.9%, including franking credits.
That's certainly not the biggest payout around, but there's more to consider about an ASX dividend share than just its dividend yield. For example, can its payouts match/exceed inflation, and can it grow profit to justify a higher Wesfarmers share price?
Rising payout from the ASX dividend stalwart
Wesfarmers has a track record of growing its payout most years, which is pleasing for investors wanting a portion of the profits each year.
On its website, the company states its goal for rising payouts:
With a focus on generating strong cash flows and maintaining balance sheet strength, the group aims to deliver satisfactory returns to shareholders through improving returns on invested capital.
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.
In FY25, the company decided to hike its annual dividend per share by 4% to $2.06. According to projections on CMC Markets, it's predicted to grow its payout by 5% in FY26 and then by another 10.5% in FY27 to $2.40 per share.
Growing earnings
Wesfarmers is not a high-flying tech stock, but the last six years have shown how Kmart and Bunnings are leaders in Australia, helping grow Wesfarmers' bottom line. Both businesses have impressed me with their ability to grow market share with their good value products, earning high returns on capital (ROC) for shareholders, and continuing to find new sources of growth.
For example, Bunnings has sought to expand in areas such as pet care and auto care. Kmart has looked to sell its Anko products in overseas markets, such as North America and the Philippines.
I like how the company has the ability to look to new sectors to grow its earnings, such as healthcare and lithium mining. Healthcare is such a large industry, and Wesfarmers can use its scale to succeed in this sector, growing in various areas of that industry (such as pharmacies or digital healthcare).
By FY27, the ASX dividend stalwart is predicted to deliver earnings per share (EPS) of $2.73. That means, at the time of writing, it's trading at under 30x FY27's forecast profit.
