I think that Wesfarmers Ltd (ASX: WES) shares could be one of the best options for blue chip dividends on the ASX.
Why Wesfarmers?
Wesfarmers is one of the biggest ASX blue chips in Australia, particularly for dividends.. It’s made up of a variety of businesses – most people would know the retail side of the company including Bunnings, Officeworks, Kmart, Target and Catch. Whilst it’s all retail, each of them have their own target market, so they can all succeed at the same time.
Target and Kmart have found the COVID-19 period difficult because of the reliance on large amounts of customers walking through their stores.
But Bunnings and Officeworks have continued to perform strongly. People needed to buy a home office setup to work at home during the pandemic, whilst others decided to take on a home DIY project whilst they were stuck at home.
I believe that Bunnings is one of the best retail businesses in the whole country. It has huge scale, great customer loyalty, good customer service, attractive prices, rising profit margins and arguably the best sausage sizzle in the land.
Bunnings now generates the lion’s share of Wesfarmers’ EBIT (EBIT explained). I think that’s attractive considering Bunnings continues to perform strongly and has an extremely good return on capital of 61.8%.
Why Wesfarmers is a great blue chip ASX dividend share
Aside from simply long term dividend growth, which it has history of, it’s the diversification of Wesfarmers that attracts me most. Wesfarmers is a very different business compared to 50 years ago. In 50 years time it will probably have changed a lot again. This means that its business model won’t get out of touch with whatever is the business market is doing. The operating flexibility is a very attractive feature. It’s not stuck being a NBN-affected telco or a disrupted oil producer.
Wesfarmers has a focus on shareholder returns, which means that shareholders should always get decent dividend income from Wesfarmers, whatever happens. It currently has a fully franked dividend yield of around 3.5%, which is a solid yield in this environment. I also other ASX dividend shares such as Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
