Owning Wesfarmers Ltd (ASX: WES) shares has been an excellent choice for passive income over the past decade, and I expect it will continue for the foreseeable future.
Shareholders can largely thank Bunnings and Kmart for enabling the company to pay stable and growing dividends this decade. On more than one occasion, those two leading businesses have helped households during high inflation.
Even if national retail spending were to fall, Kmart and Bunnings have shown the ability to grow sales, a great sign that they are increasing their market share. Bigger scale can also help with improving profit margins.
With the business set to report dividend growth in FY26, we're going to look at what the business could deliver in FY27.
Image source: Getty Images
Wesfarmers dividend projection for FY27
According to Commsec's forecast, the business is projected to pay an annual dividend per share of $2.19 in FY26. That translates into a dividend yield of 2.4%, or 3.5% including the franking credits.
I wanted to give context of where the Wesfarmers dividend is expected to be in FY26 before seeing what could happen in FY27.
According to Commsec's forecast, the business is projected to grow its annual dividend per share by 8% year-over-year in FY27 to $2.33 per Wesfarmers share.
At the time of writing, that potential payout translates into a dividend yield of 2.6%, or 3.7% including the franking credits.
What would be needed for $1,000 of passive income?
The prospects look good for shareholders to get bigger payouts in FY27, though that's not guaranteed, of course.
If an investor wants $1,000 of passive income from the Kmart and Bunnings owner, they'd need 430 Wesfarmers shares. At the time of writing, this would cost approximately $38,300.
If we include franking credits in the income goal, an investor would only need 301 Wesfarmers shares to generate $1,000 in annual dividends. At the time of writing, this would cost approximately $26,800.
Is this a good time to invest in Wesfarmers shares?
I think Wesfarmers is one of the best ASX blue-chip shares around. However, at the time of writing, it has risen approximately 15% in the past month. It's not as good value as it was.
According to CMC Invest, the average price target from nine recent analyst ratings on the business is $76.34. That suggests those analysts collectively believe the stock could drop by more than 14% over the next year, so there could be even better opportunities at more attractive valuations.
