How Does Wesfarmers Limited (ASX:WES) Fare As A Dividend Stock?

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Over the past 10 years, Wesfarmers Limited (ASX:WES) has returned an average of 5.00% per year to shareholders in terms of dividend yield. Let’s dig deeper into whether Wesfarmers should have a place in your portfolio.

Check out our latest analysis for Wesfarmers

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is their annual yield among the top 25% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has the amount of dividend per share grown over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will the company be able to keep paying dividend based on the future earnings growth?

ASX:WES Historical Dividend Yield August 19th 18

Does Wesfarmers pass our checks?

The company currently pays out 96.86% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect WES’s payout to fall into a more sustainable range of 85.96% of its earnings, which leads to a dividend yield of around 4.53%. In addition to this, EPS should increase to A$2.99, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Although WES’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.

In terms of its peers, Wesfarmers generates a yield of 4.24%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.

Next Steps:

Whilst there are few things you may like about Wesfarmers from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three pertinent factors you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for WES’s future growth? Take a look at our free research report of analyst consensus for WES’s outlook.

2. Valuation: What is WES worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether WES is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.