Wesfarmers Ltd (ASX: WES) has a claim to being the best ASX blue chip share around thanks to its growth and diversification.
What makes Wesfarmers so good?
I really like the diversified operations that Wesfarmers has. And the ability to continue to diversify into the future.
The business operates a number of different businesses including Bunnings, Kmart, Officeworks, Target and Catch. Together, Wesfarmers is a formidable retail business.
The growth over the short-term and the long-term has been impressive. Bunnings has grown into a DIY and hardware behemoth that is generating very strong returns for shareholders.
Indeed, nearly all of the Wesfarmers businesses are seeing a good amount of growth. The HY21 result saw Bunnings’ earnings before tax (EBT) grow 35.8% to $1.275 billion. Kmart Group (Kmart, Target and Catch) EBT rose 42% to $487 million. Officeworks EBT grew 22% to $100 million and Industrial and Safety EBT grew $30 million to $37 million.
So, the existing businesses are doing very well in this COVID-19 environment.
It’s a strong business today and I don’t see any change for Bunnings, Officeworks and Kmart – I think they’ll remain category leaders in Australia for the foreseeable future.
Diversification
Whilst Wesfarmers is currently focused on retail, it’s always looking to diversify. It recently approved the $1 billion Mt Holland project.
Wesfarmers and Sociedad Quimica y Minera de Chile (SQM) have recently completed an updated definitive feasibility study (UDFS) for the Mt Holland lithium project.
That updated study showed an increase in the concentrator and refinery production capacity from 45,000 tonnes per annum to approximately 50,000 tonnes per annum of battery grade lithium hydroxide.
The study also shows more flexibility to provide for a second phase of the project to expand production capacity at Mt Holland and the Kwinana refinery. Preliminary work to evaluate expansion options will commence in parallel with the construction of the first phase of the project.
Wesfarmers Managing Director Rob Scott said: “The development of the Mt Holland lithium project presents an attractive investment for Wesfarmers shareholders. The project capitalises on our chemicals, energy and fertilisers divisions’ chemical processing expertise and Western Australia’s unique position to support growing global demand for electric vehicle battery materials which will make a crucial contribution to global efforts to reduce greenhouse gas emissions. We have been pleased with progress of discussions with key battery manufacturers, which reflect a positive outlook for battery quality sustainably sourced lithium hydroxide.”
I think this shows that if Wesfarmers can go from retail to lithium mining, it can invest in almost any industry. That should future-proof it as time goes on.
Dividends
Another great thing about Wesfarmers as a blue chip ASX share is its commitment to providing shareholders with cash returns in the form of dividends. That’s a good way to boost returns. But it retains a good amount of profit to re-invest into more opportunities.
Looking at the last 12 months of dividends, Wesfarmers has a fully franked dividend yield of 3.3%.
Wesfarmers is probably one of the highest quality ASX dividend shares around, but there are others out there too.
