Overinvested in Westpac shares? Here are 2 other ASX blue-chips to buy

Diversifying could be a smart choice.

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After the excellent run of ASX bank shares over the past year, some investors may feel their portfolios are overexposed to the sector, including Westpac Banking Corp (ASX: WBC) shares. But there are other ASX blue-chip shares that could be good diversification options.

Created with Highcharts 11.4.3Westpac Banking Corporation PriceZoom1M3M6MYTD1Y5Y10YALL11 Nov 202311 Nov 2024Zoom ▾Jan '24Mar '24May '24Jul '24Sep '24Nov '24Jan '24Jan '24Apr '24Apr '24Jul '24Jul '24Oct '24Oct '24www.fool.com.au

As the chart above shows, Westpac's share price has gained more than 50% in the past year. However, the bank hasn't exactly delivered an exciting earnings performance. In FY24, Westpac reported that its net profit after tax (NPAT) dropped by 3% to $7 billion.

What's going wrong? Intense competition in the loan space is hurting lending margins, arrears are rising, and inflation is leading to higher costs. Given the current elevated earnings multiple valuations, I don't think it's likely that banks like Westpac will beat the market's return in the short-to-medium term with the current challenged economic environment.

So, with the goal of diversification in mind, let's examine two other ASX blue-chip shares that also provide good dividends.

Coles Group Ltd (ASX: COL)

As one of Australia's largest supermarket businesses, Coles has significant scale advantages, an excellent (and improving) supply chain and an increased focus on providing appealing own-brand products.

The recent attention from the competition regulator, the ACCC, has led to a sell-off of Coles shares. I view this decline as a long-term opportunity. Coles may be hit with a (large) fine, or it may win the case. But whatever happens, I believe it's a one-off issue that won't change Coles' long-term outlook.

Coles' FY25 first quarter update showed three of the main things that I hoped it would.

First, supermarket sales increased at a pleasing rate – it reported 3.5% revenue growth to $9.5 billion. This came despite inflation (excluding tobacco) being just 1%, which is a good development for households.

Secondly, Coles is delivering excellent e-commerce sales growth. The world is becoming increasingly digital, so it's important that Coles provides a compelling (and strengthening) offering. FY25 first quarter e-commerce sales grew 22.4% to $1.04 billion, accounting for 10.8% of total sales.

Third, the ASX blue-chip share has finished construction of its automated distribution centres in Queensland and New South Wales. It's now going to build one in Victoria that can service all stores in Victoria and Tasmania while handling 15% more capacity than the ones in NSW and Queensland.

According to the forecast on Commsec, by FY26, the supermarket could pay an annual dividend per share of 74 cents, which translates into a grossed-up dividend yield (including franking credits) of 6%.

Medibank Private Ltd (ASX: MPL)

Medibank is the largest private health insurer in Australia.

Despite the economic challenges for households, FY24 saw the business grow its net resident policyholders by 14,400 (0.7%) and increase net non-resident policy unit growth by 69,000 (25.1%).

Policyholder growth helped revenue from external customers grow 4.7% to $8.17 billion, enabled operating profit to rise 7.9% to $700 million, and assisted the annual dividend per share in increasing by 13.7% to 16.6 cents.

Medibank expects moderating industry growth for resident health insurance in FY25 compared to FY24. However, it will aim to grow in line with the market (including volume growth for the Medibank brand). The ASX blue-chip share will aim to grow market share in FY26. It's also expecting "solid" policy unit growth to continue in FY25.

If Medibank can keep growing its policyholder unit numbers, then I believe the dividend and profit can keep rising.

The estimate on Commsec suggests the Medibank dividend could rise to 18.5 cents per share, representing a grossed-up dividend yield of approximately 7%.

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 Coles Group. 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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