The Wesfarmers Ltd (ASX: WES) share price has had a phenomenal year in 2020 so far. Wesfarmers shares are today trading at $45.04 at the time of writing. That’s a good 9% higher than they were at the start of the year and 45.5% above the lows we saw on 23 March. Considering the S&P/ASX 200 Index (ASX: XJO) is still 11.7% below where it was at the beginning of January, shareholders don’t have a lot to complain about the Wesfarmers share price from where I’m standing. Part of Wesfarmers’ appeal is its strong reputation as a solid, reliable dividend-paying share.
Seeing as 2020 has so far been almost defined as the year of the dividend cut (or suspension, deferral or cancellation), I thought it would be a good time to reexamine this ASX blue chip for its current and future income potential.
What is Wesfarmers?
Wesfarmers is one of the largest companies on the ASX. It is a massive conglomerate and quite a unique company among the ‘big players’ on the ASX. It is primarily a retailer – most of Wesfarmers’ earnings come from the Bunnings Warehouse chain of hardware stores. This is augmented by its OfficeWorks chain, as well as Kmart and Target. The company used to also own Coles Group Ltd (ASX: COL), but has spent the last 2 years or so offloading its’ Coles shares. It now only retains about 5% of the grocery company.
But that’s far from where Wesfarmers’ pies end. It also owns a bevvy of other businesses including chemical and fertiliser manufacturing facilities, a lithium miner, a work clothing line and a gas distribution business. This is about as diversified a business as they come.
What kind of dividends does Wesfarmers pay?
Wesfarmers’ recent dividend history has been very patchy. This is largely due to the lumpy special dividends the company has been periodically doling out over the last couple of years. These have mostly been funded from the Coles sale, which has been especially lucrative for Wesfarmers shareholders. They also all received one COL share for every WES share owned back in November 2018.
So in 2019, Wesfarmers paid out an interim dividend of $1 per share and a final dividend of 78 cents per share (cps), as well as a special $1 per share dividend.
In 2020, the company has kept the train on the tracks (albeit at a slower speed). It has paid an interim dividend of 75 cps and a final dividend of 77 cps, as well as a special dividend of 18 cps. The final and special dividends will hit investors’ bank accounts on 1 October.
$1.52 in annual dividends gives Wesfarmers a fully franked yield of 3.36% on current prices, or 3.76% if we include the special dividend. Including Wesfarmers’ full franking credits, these numbers gross-up to 4.8% and 5.37% respectively.
Is this yield worth a buy today?
Whilst those yields are respectable, I don’t think they are anything to write home about. The Wesfarmers share price is today quite expensive in my opinion, trading at a price-to-earnings (P/E) ratio of 31.53. If I was desperate for a decent dividend payer, I would consider the Wesfarmers share price a buy. But if you are able to wait, I think there will likely be a better buying opportunity down the road.
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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and 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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