WES share price in focus
Wesfarmers is a diversified Australian conglomerate headquartered in Perth. It’s essentially a listed investment company with outright ownership or significant stakes in companies across retail, chemical, fertiliser, industrial and safety brands and products.
Wesfarmers has a long history of buying businesses, re-investing in them to grow cash flow and assets, then selling them off for a higher price. A good example of this is 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 Warehouse, the #1 hardware and home improvement business in Australia (and the country’s most trusted brand in 2023 & 2024). Wesfarmers originally bought into Bunnings in 1987, buying the final 52% in 1994 for $594 million.
Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy. Wesfarmers has been a leading blue chip stock on the ASX for decades and is known for paying a consistent dividend.
The appeal of Consumer staples
The S&P/ASX200 Consumer Staples Index (ASX: XSJ) has delivered returns of -2.57% per year over the last 5 years. That compares to the broader ASX 200 which has returned 4.08% per year over the same period. Let’s explore why a consumer staples company like WES could be a smart choice for your portfolio.
Big dividends
Consumer staples companies aren’t typically known for rapid growth, but where they excel is in providing consistent dividend income. Over the past 5 years, WES has offered an average dividend yield of 3.36% annually.
This steady payout is linked to the nature of their business, which brings us to the next reason investors favour consumer staples companies…
Resilience
No company or sector is totally immune to recessions, but consumer staples companies are often better equipped than others to weather economic downturns. When the economy hits tough times (which is inevitable), discretionary spending always takes the hit first. Demand for staples remains relatively stable in comparison. This resilience can give companies like WES a notable advantage over more cyclical secotrs during a downturn.
Lower volatility
Another key benefit of consumer staples companies is their lower market volatility. Because the demand for their products and services is consistent, these businesses are less subject to economic cycles than sectors like resources and commodities.
Companies like Woolworths or Coles also have high market share which tends to give them more pricing power, so they can act as a price maker instead of a price taker. So, consumer staples companies can bring some stability to a diversified portfolio.
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 2.76%, 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.
