I'd say Wesfarmers Ltd (ASX: WES) shares could be one of the best ASX blue-chip options for retiree investors.
The name 'Wesfarmers' may not be as famous as Commonwealth Bank of Australia (ASX: CBA) or BHP Group Ltd (ASX: BHP). But, I'm going to explain why I think Wesfarmers could be the strongest blue-chip that retirees could want to buy right now.
Let's run through my thoughts.
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Diversification
Wesfarmers is the parent company behind a number of Australian businesses including Kmart, Bunnings, Officeworks, Target, Priceline, Clear Skincare Clinics, Blackwoods, Workwear and WesCEF (chemicals, energy and fertilisers).
I think this is a great strategy for the company because it means it's not stuck in any particular industry. It can invest where it sees opportunities and divest businesses when it no longer wants to own them.
For example, it used to own coal mines and Coles Group Ltd (ASX: COL), and both were divested several years ago.
I like that the company can adjust its portfolio, allowing it to future-proof the overall business and re-direct capital towards growth industries.
For example, in recent years, some of its investment dollars have gone towards healthcare, lithium mining and modular home construction.
Plenty of ASX businesses are stuck in their core industry, so their success will be partially down to how profitable their sector is in the coming years.
Rising dividend
One of the main things that retirees may be looking for is dividend income.
Wesfarmers has a great dividend record, in my view. Following its split from Coles, it has increased its annual passive income each year since 2020.
I believe it's likely the business will continue to hike its annual dividend for a couple of key reasons.
Firstly, the company has stated it wants to grow its dividend over time alongside its earnings growth.
The projection on Commsec suggests the business could pay an annual dividend per share of $2.16 in FY26.
At the time of writing and the current Wesfarmers share price, it could provide a FY26 grossed-up dividend yield of around 4%, including franking credits. I'd say that's a solid starting dividend yield for retirees.
I'll explain my other reason for expecting dividend growth below.
Well-positioned for the current conditions
Both Kmart and Bunnings are national leaders at providing good value products for households. Wesfarmers succeeded during the last period of inflation and I think it's primed to do well again and perhaps gain market share.
Both Kmart and Bunnings achieve excellent returns on capital (ROC), helping it normally achieve a return on equity (ROE) of more than 30%, meaning shareholder money is working very hard.
I think Bunnings and Kmart can both grow their earnings in the coming period, perhaps gaining market share, and this can fund larger dividends in FY27 and beyond. The current forecast on Commsec suggests the FY27 annual dividend per share could increase by around 8%.
