Why Wesfarmers (ASX: WES) is a great leading share of ASX
Wesfarmers Ltd (ASX: WES) is in my opinion one of the best blue-chip ASX stocks.
It’s one of the oldest companies in ASX and I think it still has a lot of potential for long-term growth.
Here are the reasons why I really like it:
The portfolio of companies that Wesfarmers currently owns is really good in my opinion.
When you look at Bunnings, it’s the biggest hardware chain in Australia. It makes an excellent Return on Capital (ROC) for Wesfarmers and generates the most operating profit for the company. Bunnings is also diversifying with acquisitions such as Beaumont Tiles. It is also aiming for a greater market share of professional customers.
Officeworks is the market leader for office products in Australia. He benefited from people’s need to learn from home and work from home. Technology will continue to be important to students and businesses for a long time to come.
Kmart is probably the best department store company in Australia.
Catch is a growing online retail business with a lot of potential in the years to come.
The industrial and security activities of Wesfarmers and WesCEF are also very efficient.
With respect to the return on capital for fiscal year 21, Bunnings’s ROC was 82.4%, the ROC of Kmart Group (including Target and Catch) was 52.1% and the ROC of Officeworks was by 22.3%. These are impressive numbers.
I’m really drawn to the fact that Wesfarmers can decide to invest in any industry they want.
For example, it has invested in lithium with its involvement in the Mt Holland project. This could be a good source of income for the Wesfsrmers in the years to come. This gives it exposure to a new age industry.
The company also monitors the activity of Priceline Pharmacy Australian Pharmaceutical Industries Ltd (ASX: API).
Over time, the blue-chip ASX stock may invest and sell different companies and industries within its portfolio. This should ensure the sustainability of the business.
Commitment to shareholder returns
Wesfarmers has a healthy dividend payout ratio for shareholders. It brings in a solid income while retaining some capital for more profit. In fiscal 21, it paid a dividend of $ 1.78 per share (up 17.1%), while underlying earnings / earnings per share (EPS) was $ 2.14 .
But, due to the fact that Wesfarmers now has so much capital on its balance sheet, the board of directors also recommended a return of capital of $ 2 per share.
Capital growth and dividends are a good combination.
Final thoughts on Wesfarmers and the stock price
Wesfarmers is a big, top-notch ASX share. I would be happy to own it and keep it in my wallet. It looks better after a 14% drop from August 20, 2021.
But I still wouldn’t count it as Great value given that sales are down from the amazing FY21. CommSec sets it to 29x the estimated earnings of FY22. There may be other ASX dividend stocks that are better choices.