Telstra Corporation Ltd (ASX: TLS) recently revised its FY 2018 guidance and whilst management reaffirmed that it expects its FY 2018 total dividend to be 22 cents per share fully franked (a yield of 6.4% based on the latest share price), investors might still be concerned about the sustainability of that dividend.
Investors looking for an alternative might want to consider Wesfarmers Ltd (ASX: WES). The conglomerate owner of top retail brands such as Coles and Bunnings is a popular blue chip stock that could be an alternative to Telstra. Here are its key metrics:
- Dividend yield. Wesfarmers has a 100% franked dividend yield of 5.1% compared to a market average of 3.8% and a sector average of 4.4%. Competitor Woolworths Limited (ASX: WOW) has a lower dividend yield of 3.1%.
- Dividend payout ratio. Wesfarmers has a dividend payout ratio of 85% i.e. 85% of its FY 2017 profits were paid out as a dividend. This suggests that its dividend amount is fairly sustainable and can be maintained should earnings drop slightly.
- Dividend growth rate. Wesfarmers has an average 5-year dividend growth rate of 6% and a 10-year average dividend growth rate of 1.7% which is good for long-term investors.
- Dividend stability. Wesfarmers has a dividend stability of 96.6% which is consistent with the sector average. Its earnings stability rate of 63.6% is slightly higher than the sector average of 52.1%.
- Gearing. Wesfarmers has a conservative debt-to-equity ratio of 22.6% compared to Woolworths' gearing ratio of 30.7%.
- Valuation. Wesfarmers has a lower PE ratio of 17 that is consistent with the market average. Its price to book ratio of 2.07 however is higher that the market average of 1.56.
- Future prospects are the main challenge for Wesfarmers. Efforts to replicate the success of Bunnings in the UK have not yet been successful to date and the threat of Aldi and perhaps Amazon Fresh in the future could hurt its Coles business.
Overall, Wesfarmers has been a consistent performer but if you are looking for something different such as a fast-growing technology, you might want to read Bill Gates' prediction below.
