Wesfarmers Ltd (ASX: WES) shares are out of form on Tuesday morning.
At the time of writing, the conglomerate's shares are down over 2% to $80.69.
This compares unfavourably to the performance of the S&P/ASX 200 Index (ASX: XJO), which is currently up 0.2%.
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Why are Wesfarmers shares underperforming?
The good news is that today's decline has nothing to do with a broker downgrade or a disappointing update.
In fact, today's decline could arguably be described as a positive for shareholders. That's because it indicates that pay day is on its way.
This morning, Wesfarmers shares have traded ex-dividend. When this happens, it means the rights to an upcoming dividend are now locked in.
As a result, any investors that are buying the Bunnings and Kmart owner's shares today would not be entitled to receive the payout when it is made. Instead, the dividend will be sent to the seller of the shares, even though they no longer feature in their portfolio.
And with a dividend representing cold hard cash, which forms part of a company's valuation, a share price will tend to decline on the ex-dividend date to reflect this. After all, new investors don't want to pay for something that they won't receive.
The Wesfarmers dividend
Last week, Wesfarmers released its half-year results and revealed a 3.1% increase in revenue to $24.2 billion and a 9.3% lift in net profit after tax to $1.6 billion.
Management advised that this was driven by strong earnings growth from its major divisions, led by Bunnings, Kmart Group, and WesCEF.
The Bunnings business delivered higher sales across all categories and geographies, while Kmart Group benefited from strong demand for its popular Anko ranges.
Wesfarmers' managing director, Rob Scott, said:
Wesfarmers' increase in profit was supported by strong earnings contributions from our largest divisions – Bunnings, Kmart Group and WesCEF. During the half, Wesfarmers' divisions benefited from productivity initiatives to navigate ongoing challenging market conditions.
Despite a modest improvement in consumer demand, higher costs continued to weigh on many households and businesses, and residential construction activity remained subdued. The divisions performed well, driving productivity to mitigate cost pressures and keep prices low for customers.
This ultimately allowed the Wesfarmers board to declare a fully franked interim dividend of $1.02 per share. This is up 7.4% on the prior corresponding period.
Eligible shareholders can now look forward to receiving this payout next month. Wesfarmers is scheduled to pay it in around five weeks on 31 March 2026.
