Here's how much I'd need to invest in Wesfarmers shares to generate a $150 monthly income

This retail giant could be a great choice for generating passive income.

| More on:
Small girl giving a fist bump with a piggy bank in front of her.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Wesfarmers has a goal of increasing its dividends to shareholders
  • If someone invested $40,000 into Wesfarmers shares, that could get $1,800 of annual income, or $150 of monthly income, by 2025
  • I think it’s a leading blue-chip idea for dividends

Wesfarmers Ltd (ASX: WES) shares typically pay investors a good dividend yield. With that in mind, could it be used as a key way to generate a monthly passive income of $150?

Wesfarmers may not be a household name for many Aussies, but the company does own a number of leading retailers including Bunnings, Kmart, Officeworks, Target and Priceline.

The company summarises its operations as being the following: home improvement and outdoor living, apparel and general merchandise, office supplies, health, beauty and wellbeing, chemicals, energy and fertilisers (WesCEF), and industrial and safety products.

Wesfarmers aims to provide long-term shareholder returns to investors. With that in mind, the company says:

With a focus on generating strong cash flows and maintaining balance sheet strength, the group aims to deliver satisfactory returns to shareholders through improving returns on invested capital. As well as share price appreciation, Wesfarmers seeks to grow dividends over time commensurate with performance in earnings and cash flow. Dependent on upon circumstances, capital management decisions may also be taken from time to time where this activity is in shareholders' interests.

Created with Highcharts 11.4.3Wesfarmers PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.com.au

How to generate $150 of monthly income

Wesfarmers doesn't pay a dividend every month, so it can't technically produce 'monthly income'. But, investors can think of the annual total as an amount that can be split up into 12 equal payments.

For a monthly income of $150, investors would need to receive $1,800 of annual dividends. That's a fair amount of cash, but achievable.

According to Commsec, Wesfarmers is expected to pay an annual dividend per share of $1.87 in FY23 and $2.20 in FY25.

Using the FY23 payment level, investors would need 963 Wesfarmers shares to get the required level of monthly income. This would come at a cost of around $47,000.

But, if the goal is to receive $1,800 of annual income by 2025, meaning $150 of monthly income, then using the projected FY25 dividend per share of $2.20, investors would only need to buy 819 Wesfarmers shares. This would come at a cost of $40,000.

Of course, I would suggest that diversification is a useful strategy. If $40,000 represents an investor's portfolio, then I'd suggest adding other (ASX) shares to lower concentration risk. An effective exchange-traded fund (ETF) could provide that diversification.

Foolish takeaway

Wesfarmers is a very effective ASX dividend share in my opinion, I think it's one of the best choices for dividends out of the large ASX blue-chip shares.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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.

More on Dividend Investing

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Bank Shares

Macquarie share price higher amid DRP dividend news

Macquarie has announced the share price of stock to be allocated through its dividend reinvestment plan.

Read more »

Couple looking very happy while shopping at a home improvement store.
Dividend Investing

Focused on pasive income? Check out this defensive ASX 200 dividend stock

A leading expert says this quality ASX 200 dividend stock remains ‘undervalued’.

Read more »

Man smiling at a laptop because of a rising share price.
Dividend Investing

2 ASX shares that I think are buys for both growth and dividends

These businesses offer so much potential.

Read more »

Worker inspecting oil and gas pipeline.
Dividend Investing

Should I buy Woodside shares today for their 8% dividend yield?

With an 8% dividend yield and a resurgent share price, should I buy Woodside shares right now?

Read more »

A woman standing in a blue shirt smiles as she uses her mobile phone.
Dividend Investing

Buy Rio Tinto, Telstra, and this ASX dividend share

Let's see what analysts are saying about these income options.

Read more »

A man wearing glasses sits back in his desk chair with his hands behind his head staring smiling at his computer screens as the ASX share prices keep rising
Dividend Investing

1 ASX dividend stock down 25% I'd buy right now

This business offers both passive income and potential growth.

Read more »

Man holding out $50 and $100 notes in his hands, symbolising ex dividend.
Dividend Investing

2 ASX shares with dividend yields above 8%

These two stocks offer investors significant passive income potential.

Read more »

Hand of a woman carrying a bag of money, representing the concept of saving money or earning dividends.
Dividend Investing

Dividend investors should put these 2 top ASX shares on their watchlist

These two businesses have exciting dividend potential.

Read more »