At the current Wesfarmers Ltd (ASX: WES) share price, it has a 4.8% fully franked dividend yield. It looks very tempting.
Wesfarmers is the owner of Coles, Bunnings Warehouse, Officeworks, Kmart and Target, among other things. The blue chip company has a market capitalisation of $49 billion. Meaning, if you bought all shares in the company at today's prices, that's what it would cost you.
Wesfarmers recently reported its half year financial results to the market, revealing a jump in profit and dividends.
Despite the recent increase, analysts are still forecasting more dividend increases from the company. Over the full year, analysts expect a fully franked dividend of $2.25 per share, equivalent to a forecast dividend yield of 5.2%.
But there is more to any share investment than dividends. Some of Wesfarmers' growth opportunities include its expansion of Bunnings Warehouse in the UK and Ireland, where it has recently opened shop. Anecdotal evidence suggests the big box DIY service has been well received.
Wesfarmers is also looking to offload some other 'non-core' businesses, including Officeworks and its resource businesses. In addition to shoring up some cash, a sale of these businesses would enable management to focus its expertise in retail.
Wesfarmers has some weak points, too. I believe its leading supermarkets business, Coles, could be staring down the barrel of intense competition. Sure, it's been winning the fight against key rival Woolworths Limited (ASX: WOW) and Aldi, so far. But Woolies is turning up the volume on marketing and grinding profit margins lower to take back its mantle as the best supermarket.
Although it makes up the lion's share of Wesfarmers' sales and profits, the industry is very mature so Coles may struggle to grow profits as it has done in recent years — if it wants to avoid ending up like Woolworths.
I'm not saying it's going to crash and burn — Coles is the best Australian supermarket, in my opinion. But we cannot expect it will grow forever!
Buy, Hold or Sell Wesfarmers
Wesfarmers is a fantastic Australian business. But I think its shares are expensive. Despite offering a stable and (according to analysts) rapidly growing dividend, I think investors would be best off avoiding it at today's prices. That means, if I held shares at lower prices, I'd keep holding. But it's not a buy in my book.
