Wesfarmers Ltd (ASX: WES) stock may not be the most well-known ASX blue-chip share, but it could be the best option for a second income.
In my view, it's not as famous as Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), or Telstra Group Ltd (ASX: TLS). But Wesfarmers owns strong businesses, and most are well known, such as Bunnings, Kmart, Officeworks, Priceline, WesCEF (chemicals, energy and fertilisers), and more.
When describing how the business decides on dividend payments and long-term shareholder returns, Wesfarmers said:
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. Dependent upon circumstances, capital management decisions may also be taken from time to time where this activity is in shareholders' interests.
With the business regularly hiking its payout this decade, it could be one to consider for a second income. Let's take a look at how attractive the ASX blue-chip share could be.
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Dividend projection
Wesfarmers has made it clear to shareholders that it wants to provide larger dividend payments. Dividend growth is not guaranteed, of course, but I think it's one of the most likely ASX candidates worth tens of billions of dollars to achieve that.
The forecast on CMC Invest suggests the business could hike its annual dividend per Wesfarmers share by 7.9% to $2.395 in FY27.
If the business achieves that, it'd represent a dividend payout ratio of approximately 88%. That's generous, but it still lets Wesfarmers retain some profit for future investment. Bunnings and Kmart are already large and established businesses, so they don't need a lot of capital for growth.
At the time of writing, the Wesfarmers FY27 dividend yield could be 3% excluding franking credits and 4.25% including franking credits.
With that forecast in mind, you could build a $2,400 annual second income, averaging $200 per month. Excluding franking credits, it'd take 1,003 Wesfarmers shares for that income goal. If we include franking credits, we'd need 702 Wesfarmers shares.
Why I'd choose Wesfarmers stock as my blue-chip pick for a second income
If I wanted to build a second income, I'd choose investments that display steady dividend growth, along with a strong outlook for long-term earnings growth.
I think Wesfarmers has proven it can do that. Customers always want good-value products, especially during tougher economic times like now. Bunnings and Kmart are seen as national leaders in providing value.
During FY26, Bunnings Group grew revenue by 4.1% to $20.4 billion and earnings by 5.1% to $2.45 billion, while Kmart Group grew revenue by 2.8% and earnings increased by 6% to $1.1 billion. It's a great sign for profit margins at both businesses are a great sign because investors usually value a business on profit, and profit pays for dividends.
Another factor that excites me about Wesfarmers is its ability to regularly invest in new businesses to diversify and expand its earnings potential.
Healthcare and lithium mining are two of Wesfarmers' latest areas of focus, with both industries benefiting from long-term growth tailwinds such as ageing demographics and the energy transition, respectively.
Additionally, the company has invested $100 million in a modular apartment manufacturer that enables apartments that are approximately 20% lower cost and 50% faster than traditional construction.
Putting all of the above factors together, combined with a return on equity (ROE) that's above 30% (and rising), the company is high-quality and has multiple ways to grow earnings. That's all powerful stuff to drive the dividend higher in the coming years, making it a great pick for a second income.
