Owning Wesfarmers Ltd (ASX: WES) shares could be a smart buy for passive income because of their resilience and regular dividend growth.
Its businesses include Bunnings, Kmart, Officeworks and Priceline, which are all trying to provide good value products for customers and gain market share. Its chemicals, energy and fertiliser (WesCEF) business gives it pleasing avenues for earnings diversification.
One of Wesfarmers' goals is to increase its dividend alongside the level of profit growth that it achieves, so its regular profit growth is helpful for pushing the payouts higher.
Let's take a look at what the passive income potential of the business is and what it would take to create $1,000 of annual passive income.
Image source: Getty Images
Projected dividend payout
We can't know for sure what the upcoming dividend payment from the business will be. Even Wesfarmers' board of directors may not know what they're going to do because there's a lot of uncertainty surrounding inflation and interest rates, due to the uncertainty in the Middle East and fuel costs/availability.
According to the projection on Commsec, Wesfarmers is forecast to pay an annual dividend per share of $2.16 in FY26.
At the time of writing, that translates into a dividend yield of 3% excluding franking credits and 4.2% including franking credits.
While that's not the biggest yield or fastest dividend growth, I think both aspects of the expected dividend payment are pleasing for investors seeking passive income.
Generating $1,000 of annual passive income
Share prices are rapidly changing amid the Middle East volatility, which is changing what dividend yield investors may get.
But, at the time of writing, an investor would need to buy 462 Wesfarmers shares to receive that level of income (if we're not including the franking credits as part of the annual passive income goal). This would require an investment of approximately $33,650.
Is this a good time to buy Wesfarmers shares?
I think Wesfarmers shares are one of the best options for blue-chip investing on the ASX with the incredible strength of Kmart and Bunnings and its efforts to expand the business portfolio into new areas (like healthcare and lithium mining).
According to CMC Invest, of eight recent ratings on the business, only one was a buy, with four holds and three sells. The average price target is $78.51, which suggests a possible rise of around 8% over the next 12 months.
So, it doesn't seem cheap, but it could still produce good returns. However, there may be better value investments elsewhere.
