Why is the Wesfarmers share price dipping on Monday?

Wesfarmers shares are falling, but here's why investors will be happy about it.

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It's been a fairly disappointing start to the trading week for the S&P/ASX 200 Index (ASX: XJO) so far this Monday. The ASX 200 has slipped by around 0.03%, albeit having broken even more than once throughout the trading day thus far. But the Wesfarmers Ltd (ASX: WES) share price is seemingly doing far worse.

Wesfrmers shares look like they are having a shocker today. The industrial and retail ASX 200 conglomerate closed at $51.09 a share last Friday. But at present, Wesfarmers shares are going for $50.46 each, down a hefty 1.23% from last week's close.

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But shareholders need not despair at this apparent underperformance of the ASX 200 today. That's because Wesfarmers shares are falling for what is probably the best reason to have a sharp drop in value – the company has traded ex-dividend today.

Wesfarmers share price drops after trading ex-dividend

When an ASX dividend share declares a dividend payment, it also must include an ex-dividend date. This is the date that cuts off eligibility for the new dividend. If investors hold the shares before the ex-div date, they get the dividend. If investors buy the shares on or after the ex-div date, they don't. It's as simple as that.

Because a company's shares become nominally less valuable after going ex-dividend, it is normal to see a big share price fall when the shares do trade ex-div. This is what is happening with Wesfarmers shares today.

Thus, if an investor buys Wesfarmers shares right now, they would not be eligible for this round of dividends and will have to wait for Wesfarmers' next dividend for their first paycheque.

So how much are Wesfarmers investors in line to receive from the company's latest dividend payment?

Well, it was only last Wednesday that Wesfarmers reported its latest earnings, covering the six months to 31 December 2022.

Amid rises in revenue, earnings and profits, Wesfarmers also declared an interim dividend of 88 cents per share, fully franked, for the first half of FY2023. That was a pleasing 10% rise in the interim dividend of 80 cents per share from last year.

This payment will be arriving in eligible investors' bank accounts next month on 28 March.

Combined with Wesfarmers' last final and fully franked dividend of $1 per share, Wesfarmers now has an annual dividend of $1.88. On today's pricing, that gives the company a dividend yield of 3.73%, or 5.33% grossed-up with that full franking.

Motley Fool contributor Sebastian Bowen owns Wesfarmers shares. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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