The Wesfarmers Ltd (ASX: WES) share price has fallen 5% from the start of September. I’m going to explain why I think it’s a long-term buy.
If you haven’t heard of Wesfarmers, you’ll have heard of many of the businesses that it operates including Bunnings, Kmart, Officeworks, Target, Priceline and Catch.
Wesfarmers share price
Ability to outperform in weak periods
Households are facing a lot of economic pain right now after all of the inflation and interest rate rises. What are people likely to do in that situation? I’d suggest that they are likely to shop at places that have a good value offering, which Kmart and Bunnings pride themselves on.
While overall retail sales may be challenged over the next 12 months or so, it’s possible that names like Kmart and Bunnings grow their market share, which could offset some of the pain.
In my eyes, Wesfarmers is one of the businesses that can benefit significantly from Australia’s rapidly growing population. More people in the country should mean more customers.
Long-term diversification
Lithium is an industry that could have attractive tailwinds because of all the electric vehicles that are predicted to be made in the coming years. Wesfarmers is working on bringing the lithium business Covalent Lithium online, which would be a useful non-retail boost to retail. I think this will have an important role in supporting the Wesfarmers share price in the coming years.
I also like the fact that the company has been making moves in the healthcare space, which is another area of potential long-term growth.
Wesfarmers isn’t afraid to make bold moves to improve its earnings profile for the long-term.
I’m not sure what its next move will be, but I like the thinking of the business’ management.
Dividends
I’m a fan of companies that pay dividends to shareholders because it’s a way that investors can benefit from the profit-making of the business without having to sell-down their holding of shares.
Wesfarmers doesn’t have the world’s biggest dividend yield, but it usually increases its annual dividend most years thanks to its strong businesses and steady re-investing in more growth.
At the time of writing, the Wesfarmers share price offers a FY23 fully franked dividend yield of 3.7%.
Final thoughts
In my eyes Wesfarmers is one of the best large cap ASX shares around. I’d call it a solid buy right now, but it’d be an even better buy if there was any short-term worries about retail spending.
