Should income investors buy Wesfarmers shares for the dividends?

A man rests his chin in his hands, pondering what is the answer?

A man rests his chin in his hands, pondering what is the answer?

Unfortunately for its shareholders, the Wesfarmers Ltd (ASX: WES) share price has been out of form in 2022.

Since the start of the year, the conglomerate’s shares have lost a disappointing 27% of their value.

Is the Wesfarmers share price weakness a buying opportunity for income investors?

According to a recent note out of Morgans, its analysts are positive on Wesfarmers and believe recent weakness has created a buying opportunity for investors. Particularly given the quality of its retail portfolio and strength of its management team.

Morgans currently has an add rating and $58.40 price target on the conglomerate’s shares.

So, with the Wesfarmers share price last trading at $43.67, the broker’s price target suggests potential upside of almost 34% for investors over the next 12 months.

Its analysts commented:

WES possesses one of the highest quality retail portfolios in Australia with strong brands including Bunnings, Kmart and Officeworks. The company is run by a highly regarded management team and the balance sheet is healthy. While COVID-related staff shortages are proving to be a challenge, the core Bunnings division (>60% of group EBIT) remains a solid performer as consumers continue to invest in their homes. We see the pullback in the share price as a good entry point for longer term investors.

What about Wesfarmers’ dividends?

Morgans is forecasting Wesfarmers to pay a fully franked dividend of $1.65 per share in FY 2022. It then expects the company to increase this to $1.81 per share in FY 2023.

Based on the current Wesfarmers share price, this equates to yields of 3.8% and 4.15%, respectively, over the next two financial years.

All in all, this stretches the total potential return on offer with the Bunnings owner’s shares to a very attractive 38%.

The post Should income investors buy Wesfarmers shares for the dividends? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. 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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