Wesfarmers Ltd (ASX: WES) has announced a special dividend in its FY19 half year report, is it a buy?

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.

Is Wesfarmers a buy?

In Wesfarmers’ first report without the de-merged Coles Group Limited (ASX: COL) business, the retail company has reported a net profit after tax of $4.54 billion.

There are two elements to this result.

Wesfarmers made a total gain of $3.06 billion on the demerger with Coles as well as the disposals of Bengalla, Kmart Tyre and Auto Service and Quadrant Energy.

The remaining businesses generated net profit after tax growth of 10.4% to $1.08 billion. Continuing revenue grew by 4.2% to $14.39 billion and continuing EBIT increased by 9.5% (click here to learn what EBIT means).

Looking at the individual segments, Bunnings EBIT grew by 7.9% to $932 million, Kmart & Target EBIT fell 3.8% to $383 million, Officeworks EBIT grew 11.8% to $76 million and the Industrials EBIT declined by 2.6% to $227 million.

The all-important Bunnings division managed to achieve solid profit growth despite a “moderation of trading conditions” through a focus on cost control and favourable commercial property conditions.

Wesfarmers Special Dividend

Wesfarmers has decided to declare an ordinary fully franked interim dividend of $1 per share.

Following all of the divestments that Wesfarmers has made, the Wesfarmers Board has also decided to pay a fully franked special dividend of $1 per share, which takes into account the available franking credits, balance sheet and cash flow.

Wesfarmers Management Comments

Managing Director Rob Scott said: “Strict capital disciplines were maintained and the Group retained a very strong balance sheet.

Net financial debt at the end of the period was $324 million, a decrease of $3,256 million below the balance sheet at 30 June 2018, reflecting the receipt of proceeds from portfolio management activity and ongoing strong cash generation in the Group’s operating businesses.”

Is Wesfarmers a buy?

Most shareholders will appreciate the special dividend, which provides a nice short term boost for income. I do wonder if the cash would have been better retained for acquisitions now or over the next couple of years.

I can understand management wanted to make use of the franking credits in-case the Labor changes proceed, but that’s far from certain.

The continued growth of Bunnings is pleasing, particularly compared to other property-related businesses, but it is slowing. I think Wesfarmers is likely to be continue to be a reasonable dividend share, but until it makes some non-retail acquisitions I don’t want to consider buying it for my own portfolio.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).