Wesfarmers Ltd (ASX: WES) shareholders might be concerned about Amazon Inc, but its 5.1% fully franked dividend looks good.
That's a hefty, tax-effective payment by anyone's measure.
An ideal dividend?
When we invest for dividends, the ideal scenario is for them to be consistent and growing, over time.
To be consistent, the business must produce a defensive and reliable stream of cash flow. As the owner of Coles, Bunnings Warehouse, Kmart, Target and more, Wesfarmers has a rich history of strong cash flow, producing reliable dividends.
Looking ahead, however, the looming threat from Amazon has investors concerned. Over the next five years, Amazon could threaten Coles and Woolworths Limited (ASX: WOW) supermarkets in major cities and is certain to — at least — partially disrupt Target and Kmart.
That could hurt Wesfarmers' dividend payments.
However, speculating on what Amazon may or may not do is premature, in my opinion. Undoubtedly, Amazon is a risk for Wesfarmers over the longer-term. But it will not be an overnight success.
Therefore, I wouldn't be in a rush to sell Wesfarmers shares. Especially when we consider Wesfarmers' success with Bunnings Warehouse, which is hyper-successful in Australia and is currently expanding in the UK.
Foolish Takeaway
Amazon is undoubtedly a threat to Wesfarmers. However, it isn't the first threat Wesfarmers has faced in its 100 (plus) years of operation. And there is still a lot to like about the company's key growth prospect, Bunnings Warehouse.
I'm not a buyer of Wesfarmers shares at today's prices — I think they are expensive — but I wouldn't label it a 'sell' either.
