Is Wesfarmers Ltd (ASX: WES) the best blue chip on the ASX?
First, we need to establish what size a blue chip needs to be before it can be called a blue chip. With a market cap of around $45 billion I'd say Wesfarmers is definitely a blue chip, I'd say the ASX 50 is probably a good cut-off for the definition of blue chips.
There are plenty of industries represented in the ASX 50, with shares like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), CSL Limited (ASX: CSL), Woodside Petroleum Limited (ASX: WPL), Medibank Private Limited (ASX: MPL), Orica Ltd (ASX: ORI), Qantas Airways Limited (ASX: QAN), Scentre Group (ASX: SCG), Telstra Corporation Ltd (ASX: TLS), Transurban Group (ASX: TCL) and Woolworths Group Ltd (ASX: WOW).
Lots of good competitors for the title of best ASX blue chip in that ASX 50 list.
Wesfarmers certainly ticks the box of providing good returns for shareholders. The dividends have been solid and management haven't been shy about trying new things. Bunnings UK was ultimately a failure, but it was worth a go and it's a good thing Wesfarmers called it quits quite quickly before the losses mounted up.
It has a pretty good group of businesses like Bunnings, Kmart and Officeworks – industry leaders. It also has significant ownership of divested businesses BWP Trust (ASX: BWP) and Coles Group Limited (ASX: COL).
I think the acquisitions of Catch Group and Kidman Resources Ltd (ASX: KDR) show that Wesfarmers is willing to work on its existing competencies (retail) whilst also exploring new areas of potential growth. Australia is a great place for resources businesses, so I don't think there's anything wrong with some companies wanting to take advantage of that opportunity.
Foolish takeaway
Most of the businesses that I listed in the ASX 50 focus on a single industry, but Wesfarmers seemingly has the flexibility to expand into whatever sector it thinks is a good opportunity. That should allow Wesfarmers to continue to be a decent investment for decades to come. Businesses like CSL are probably higher-quality, but Wesfarmers could work well as a pick for a combination of dividends and growth.
