Changes are happening - please bear with us while we update our site.

Changes are happening - please bear with us while we update our site. Click here to give us your advice and feedback.

WES shares: A deep dive

Is the Wesfarmers Ltd (ASX:WES) share price undervalued? Here are 3 reasons you might want to consider WES shares.
The Wesfarmers Ltd (ASX:WES) share price is up 15.8% since the start of 2024. Let’s take a look at why investors might be interested in WES shares.

WES share price in focus

Founded in 1914, Wesfarmers is an Australian conglomerate headquartered in Perth. Its main operations span Australia and New Zealand and include retail, chemical, fertiliser, industrial and safety brands and products.

Wesfarmers is a bit like a publicly listed private equity company. It has a long history of buying businesses, benefitting from their cash flow, re-investing in them and then selling them for a more attractive price. A good example of this might be Coles Group, which it bought in 2007 and spun out in 2018. However, by far (over 50%) of the company’s operating profit comes from Bunnings, the #1 hardware and home improvement business in Australia. Wesfarmers originally invested in Bunnings in 1987, buying the final 52% in 1994 for $594 million.

Wesfarmers has long been considered a leading blue chip stock on the ASX and is known for paying a consistent dividend. Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy.

The case for Consumer staples

The S&P/ASX200 Consumer Staples Index (ASX: XSJ) has delivered -1.14% per year of capital growth over the last 5 years. That compares to the average of all ASX sectors of 3.54% over the same period. Let’s take a look at why you might want a consumer staples company like WES in your portfolio.

Big dividends

While these types of companies might not be known for high growth, what they are known for is being solid dividend payers. Over the last 5 years the WES dividend yield has averaged 3.36% per year.

The reason that they’re able to pay consistent dividends relates to reason number 2 that investors love consumer staples companies…

Recession-proof

Ok, they may not actually be ‘recession proof’ but consumer staples companies definitely have an advantage over other sectors during downturns. By definition the products that they sell are staples, like food, beverages, and household products.

When a recession hits and consumers look to cut their spending, it’s always the discretionary spending that’s the first to go. Staples are a little more resilient, and so you’d expect a consumer staples company like WES would hold up a bit better than others when things get tough.

Less volatility

The third advantage that consumer staples companies have is their low(ish) volatility. Because, like we said, their products are always in demand, these businesses don’t tend to be cyclical.

A commodity or resource company can be the victim of fluctuating market prices and seasonal downturns, but companies like Woolworths or Coles tend to have a bit more pricing power because of their market share and the consistent demand. So, growth may be lower than other sectors, but so is the volatility.

WES share price valuation

One way to have a ‘fast read’ of where the WES share price is would be to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a shareholder, but it can fluctuate year-to-year or between payments. Currently, Wesfarmers Ltd shares have a dividend yield of around 2.97%, compared to its 5-year average of 3.36%. Put simply, WES shares are trading below their historical average dividend yield.

Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing. In the case of WES, last year’s dividend was greater than the 3-year average, so the dividend has been growing.

The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets! Both of these models would be a better way to value the WES share price.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report. Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report for FREE by CLICKING HERE NOW and creating a 100% FREE Rask Account.

(Psst. By creating a free Rask account, you’ll also get access to 15+ online courses, 1,000+ podcasts, invites to events, a weekly value investing newsletter and more!)

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

5%+ in passive income

Owen Rask’s investing report available

With bond ETFs like ASX:IAF and the S&P 500 riding high, now could be one of the best times to start earning passive income from a portfolio of shares and ETFs.

In this free analyst report, our Chief Investment Officer, Owen Rask, names 10 ASX stocks and ETFs to watch.

Unsubscribe anytime. Read our TermsFinancial Services GuidePrivacy Policy. We’ll never sell your email address. Our company is Australian owned.

Skip to content