Wesfarmers Ltd (ASX: WES) released its FY19 report this morning and declared a dividend much bigger than expected. Here’s what you need to know…
About Wesfarmers
Wesfarmers is a 100-year-old conglomerate which at various times has owned and operated some of Australia’s largest retail brands such as Kmart, Target and more. Today, its largest business is Bunnings Warehouse, the number-one DIY home improvement business.
The Numbers
Wesfarmers reported revenue of $27.9 billion, representing growth of 4.3%. Earnings before interest and tax (EBIT) growth was 12.2% excluding significant items, bringing it to $2.9 billion.
Excluding significant items, net profit after tax (NPAT) was up 13.5% to $1.9 billion and earnings per share (EPS) grew 13.5% to 171.5 cents per share.
If gains from the demerger of Coles and the disposal of Bengalla, Kmart Tyre and Auto Service and Quadrant Energy were included, NPAT would be $5,510 million.
Division Breakdown
Bunnings continues to be the largest contributor, providing the most revenue and 57% of Group EBIT. Bunnings saw revenue growth of 5% in FY19. Officeworks and Chemicals, Energy and Fertilisers were the two divisions with the highest revenue growth of 8% and 13.6% respectively.
In terms of return on capital, Chemicals, Energy and Fertilisers returned 32.6% while Bunnings produced the highest return of 50.5%, slightly higher than in FY18.
Kmart weighed on the Group’s results, with revenue up 1.1% but EBIT down 13.7%. Kmart saw a decline in return on capital from 32.2% to 29.1%. The Industrial and Safety division also saw EBIT decline by 27.1%.
Dividends
Wesfarmers declared a fully franked final dividend of 78 cps, bringing the full-year dividend to 278 cps. This is up from 223 cps in FY18, representing growth of nearly 25%. However, the full-year dividend is boosted by the special dividend that was paid in April. The final dividend is actually lower than the 120 cps dividend paid for the last two years.
Analyst Estimates
According to Bloomberg, the estimate for NPAT was $2.045 billion, around 5.4% higher than the actual result. While Wesfarmers missed the NPAT target, the 78 cps final dividend is 41.8% higher than the estimate of 55 cps.
Outlook
Wesfarmers did not provide specific targets for FY20, but there are a few things to watch. Wesfarmers has recently completed its acquisition of Catch Group, and a vote on 5th September will determine the outcome of the company’s bid to acquire Kidman Resources Ltd (ASX: KDR).
These two acquisitions, as well as 13 Bunnings stores under construction, will hopefully be the main drivers of growth over the next year. Wesfarmers will look to explore how Catch Group can support and expand Kmart to return EBIT growth to positive territory.
Summary
Overall, there are plenty of good results in this report, although shareholders could react negatively to the company missing analyst NPAT targets. While I think there are better options for growth, Wesfarmers’ 5.59% dividend yield is certainly appealing.
For other dividend shares, have a look at the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
