Owners of Wesfarmers Ltd (ASX: WES) shares have been rewarded with good dividends for many years. Is the streak going to continue? I'm going to look at one set of projections.
Wesfarmers is the name behind a number of Australia's leading retailers including Bunnings, Kmart, Officeworks, Target and Priceline. It has a division called Wesfarmers chemicals, energy and fertilisers (WesCEF), as well as a number of smaller profile industrial and healthcare businesses.
The strength and growth of Bunnings and Kmart have enabled the business to deliver good long-term profit growth, unlocking a pleasing performance of the Wesfarmers share price.
What could the picture look like for income-seeking investors over the next four or so years?
FY24
We've already seen the Wesfarmers FY24 half-year result where revenue rose 0.5%, net profit after tax (NPAT) grew by 3% and the interim dividend was increased by 3.4% to 91 cents per share.
Broker UBS has forecast that Wesfarmers could slightly grow its annual earnings per share (EPS) to $2.24 which can fund a decent increase to the annual dividend of $1.98, which would be a rise of 3.7%.
The company's profit is being supported by the value credentials of Bunnings and Kmart which are appealing in this period of a high cost of living.
FY25
UBS expects the business' resilience to continue in FY25, with another small increase (5%) of the EPS to $2.36.
The Wesfarmers dividend is forecast to increase by another 5% in FY25, supported by that profitability increase – that's despite net debt potentially reaching $10.8 billion, the highest point between FY24 to FY28.
FY26
By FY26, the company's lithium project called Mt Holland is expected to be contributing positive earnings before tax (EBT), which is forecast to be a boost for profitability.
The UBS projection suggests Wesfarmers' net profit could rise by more than $300 million in FY26, to reach $3 billion. This could mean EPS jumps by 12% to $2.64, which could help grow the annual dividend per share by 12.5% to $2.34.
FY27
The 2027 financial year could see yet another sizeable increase in EPS for the company, with UBS predicting an 11.7% increase in profit to $2.95.
Profit is what pays for the dividend payments, so it's not surprising the broker thinks FY27 could see an 11.5% hike in the dividend to $2.61 per share.
FY28
If Wesfarmers is able to get to FY28 by growing its profit and dividend every year, shareholders may be sitting on good returns.
For the 2028 financial year, UBS has projected Wesfarmers' EPS could rise by another 7.1% and this could fund a 6.9% dividend increase.
If Wesfarmers can deliver on these predictions, it would mean the EPS is in line to grow by 40% between FY24 and FY28, with the dividend increasing by 21%. It could mean the current Wesfarmers grossed-up dividend yield is around 6%.
