Owning Wesfarmers Ltd (ASX: WES) shares for passive income makes a lot of sense given its dividend track record.
The company owns a number of leading Australian businesses including Kmart, Bunnings, Officeworks, Priceline and WesCEF (chemicals, energy and fertilisers).
Wesfarmers has been listed for decades and it has delivered great dividend growth over the long-term. On the company's own website, the business says it wants to grow dividends:
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.
Let's look at what the payout is projected to deliver and what it would take to make $10,000 of dividends.
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Dividend projection
Considering we're already in the 2027 financial year, I think it's worthwhile to look at what could happen with the company's annual dividend in FY27.
According to the projection on Commsec, the business is forecast to pay an annual dividend per share in FY27 of $2.33 – that would represent year-over-year growth of around 8% compared to the estimate for the annual payout of $2.16 in FY26.
At the time of writing, the potential payout for FY27 translates into a dividend yield of 2.5% excluding franking credits and 3.6% including franking credits.
That's not the biggest dividend yield out there, but the business continues to retain some of its earnings to reinvest for growth, and the company is priced for its rising earnings. The yield could be noticeably higher by the end of the decade if it continues to grow its annual passive income.
Wesfarmers has increased its annual dividend each year since 2020, after spinning off Coles Group Ltd (ASX: COL) as a separate business. I think the quality of Wesfarmers' earnings from Kmart and Bunnings will help it continue growing earnings in the next few years.
How many Wesfarmers shares are needed for $10,000 of passive income?
Receiving $10,000 of dividends from a single business would be a substantial amount, so I'd suggest investors should make sure their portfolio is diversified and not mostly reliant on Wesfarmers for passive income.
Based on the projection for the 2027 financial year, an investor would need 4,292 Wesfarmers shares excluding the franking credits. If we include the franking credits as part of the overall goal, an investor would need 3,005 Wesfarmers shares.
At the time of writing, the Wesfarmers share price has soared 30% since mid-May. While this is great for existing shareholders, it's a less compelling buy for new shareholders. There are other ASX shares that could be better buys.
