Is the Wesfarmers Ltd (ASX: WES) share price a buy for dividends?
The Motley Fool’s Everlasting Income service currently rates Wesfarmers as a buy.
What is Wesfarmers?
Wesfarmers can trace its history back over a century back to 1914 as a Western Australian farmers’ cooperative. It’s now one of the biggest businesses on the ASX.
The company has a number of different operating businesses.
There’s Bunnings, which is the country’s biggest DIY store. It sells a variety of home items and materials like timber, paint kitchens, lighting, bathrooms and plants.
Kmart Group is the next section, this includes the two large department stores of Kmart and Target.
Catch is the online-only retailer that sells a huge selection of items like food and pantry items, clothes, home and kitchen, devices, appliances, clothes, toys and furniture.
Officeworks is another segment to the business. It sells lots of different office supplies. It also sells things like computers, screens, printers and phones.
There are also two industrial divisions. Wesfarmers chemicals, energy and fertilisers (WesCEF) operates eight individual businesses in Australia.
It also has the ‘industrial and safety’ segment which operates four main businesses: Blackwoods which distributes tools, safety gear, workwear and industrial supplies. Workwear Group, which provide industrial and corporate workwear. Coregas is a supplier of industrial specialty and medical gases. Greencap is an integrated risk management and compliance company.
What has been happening recently?
Wesfarmers just announced a trading update at its AGM for the four months to 31 October 2020.
The Wesfarmers managing director Rob Scott said that the trading performance across the business had been pleasing, with the businesses responding well to a period of significant uncertainty and disruption.
Wesfarmers reported that Bunnings’ total sales grew by 25.2% with comparable sales growth of 30.9%. Comparable sales only relates to stores that were open. Online penetration was 3.8%.
Kmart total sales went up by 3.7% with comparable sales growth of 9.4%. Online penetration was 10.2%.
Target saw total sales fall by 2.2%, although there was comparable sales growth of 9.9%. Online penetration was 18%.
Catch reported that its total sales, in gross transaction value terms, went up 114.4%. Catch had 2.7 million active customers at the end of October 2020, compared to 2.3 million active customers at the end of the 2020 financial year.
Officeworks reported that total sales went up by 23.4% and the online penetration reached 39.3%.
In the financial year to date, the group’s retail businesses delivered total online sales growth was 166%, excluding Catch. Excluding online sales in metropolitan Melbourne, which were significantly elevated because of government-mandated trading restrictions, online sales growth was 98%. Including Catch, total online sales across the group increased to $1.3 billion in the year to date.
Wesfarmers also said that its industrial divisions have made a pleasing start to FY21.
In terms of Melbourne sales, Mr Scott said: “As a result of significant pent-up demand, the trading performance across stores in Melbourne has been very strong since they re-opened to retail customers on 28 October 2020.”
Is the Wesfarmers share price a buy for income?
In FY20 Wesfarmers paid $1.70 in dividends, which amounts to a trailing grossed-up dividend yield of 5%. According to Commsec estimates, the FY21 earnings per share (EPS) will be $1.85 – that means it’s valued at 26x FY21’s projected earnings.
The Motley Fool Everlasting Income service currently rates Wesfarmers as a buy. The service focuses on generating maximum, consistent, high quality, tax-effective income; while preserving capital over the long term.
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Returns As of 6th October 2020
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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