I think the Wesfarmers Ltd (ASX: WES) FY21 result proved that the business is one of the best ASX blue chip shares out there.
Wesfarmers proves it’s wonderful
The diversified business had a solid FY21. Its continuing operations revenue increased by 10% to $33.9 billion, whilst the profit / earnings per share (EPS) rose by 16.2% to $2.14. This allowed management to grow the full year ordinary dividend by 17.1% to $1.78 per share.
I think those numbers are really good, particularly for investors that are relying on dividend income.
For me, it was very impressive with how much its two largest profit generators increased their underlying profit. Bunnings earnings before tax increased 19.7% to $2.19 billion and Kmart Group earnings before tax shot up 69% to $693 million.
Bunnings is a star performer
The last year and a half has been transformative for Bunnings. It now has a performing online website and it’s building its offering for trade customers. Bunnings recently acquired Beaumont Tiles too. It’s also rolling out new Adelaide Tools stores.
In FY21, Bunnings saw 2.3% of its revenue come from online.
One of the most incredible statistics from Bunnings was that its return on capital was 82.4% in FY21, up from 58% in FY20.
It’s generating huge profit for Wesfarmers, particularly for how much money Wesfarmers has actually put into it.
Diversification is a feature
Wesfarmers has a lithium project, Mt Holland, that now has received all critical approvals to begin construction. It can capitalise on Wesfarmers’ chemical, energy and fertiliser business expertise in chemical processing as well as Western Australia’s unique position to support growing global demand for electric vehicle battery materials.
That’s one of the best things about Wesfarmers in my opinion. Management can steadily change the business over time. It acquired Bunnings a long time ago. Wesfarmers bought and divested Coles Group Ltd
(ASX: COL). Coal was divested. Lithium is in.
Wesfarmers could go for any sector it thinks will be good for shareholder returns over the long-term.
Wesfarmers is focused on shareholder returns
Ultimately, businesses are meant to do the right thing for shareholders and try to make returns.
Wesfarmers hasn’t been afraid of making big moves, like acquiring Homebase in the UK and trying to turn it into Bunnings UK. But it isn’t afraid of walking away if it’s not the right thing for shareholders, like it did when it quickly ended the UK expansion attempt. Dividends and growth are a good combination.
The capital return of $2 per share was also a welcome boost from Wesfarmers, who were already getting a solid dividend.
I think that Wesfarmers is one of the best ASX blue chip shares. It has a great portfolio of businesses and could keep growing over time as it grows organically and with acquisitions. However, with FY22 sales heading backwards, I’d wait for a bit better value before buying shares.
