Thanks to the declaration of a final payment of $1.10 per share Wesfarmers Ltd (ASX: WES) shares currently trade on a fully franked dividend yield equivalent to 5.06%.
Grossed-up for those lovely franking credits, Wesfarmers shares are yielding 7.23%.
As an aside, a major Australian bank is currently offering a 2.4% interest rate on its 12-month term deposits, up to $499,999.
It's a tough choice isn't it…
…a 7.23% dividend from a major Australian conglomerate with a history of increasing its dividend payments, or a partially guaranteed term deposit offering a 2.4% return before income taxes and the 1.5% inflation rate.
So many choices, and such a large difference in expected returns.
In fact, over a five-year period (which in my opinion is a prudent timeframe to have a sum of money invested in the stock market) $10,000 invested at 7.23% becomes $14,117 before taxes, brokerage and inflation.
A 2.4% annual return, however, would make the $10,000 just $11,259.
Personally, I'd rather take my chances on the market.
Even if I think Wesfarmers shares are a little pricey today, I'd much rather have my money invested in a 100-year-old defensive – but growing – conglomerate before consciously choosing to invest my money at a loss, in inflation-adjusted terms.
Wesfarmers' Dividends per Share since 1994
Source: Wesfarmers Dividend History.
Sure, the sharemarket is riskier than a term deposit – in terms of both irregular dividend payments and the potential for capital loss. However, provided you're investing for the long term, it's proven time and again to be the best asset class.
And as the owner of Bunnings Warehouse, Coles, Officeworks, Kmart and much more, Wesfarmers could prove to be an excellent stepping stone into the market.
