Wesfarmers Ltd (ASX: WES) shares tick so many boxes that I think it could be a good investment for many different portfolios.
It may not be a name that’s familiar to everyone, but the businesses it runs are very well-known. Wesfarmers owns Bunnings, Kmart, Officeworks, Priceline, Catch, Target and a number of other industrial businesses.
There’s more to the investment case for entry in every portfolio than simply operating well known businesses.
Younger Aussies
When I think about some of the good investments for younger Australians, I think one characteristic I’d want to see is a good likelihood of a business being able to keep making good profits for a long time. Compounding is a very powerful financial force, so let’s give it a long time to work its magic.
Wesfarmers can trace its history back to 1914, so it’s already 110 years old. It has proven that it has great longevity.
The ASX share’s ability to grow Kmart and Bunnings over the years has been exceptional. I think those two companies still plenty of growth potential left, particularly with Australia’s growing population. The returns on capital (ROC) of Kmart and Bunnings are impressive.
I like the ways the business is attempting to diversify its operations, such as investing in healthcare and lithium, which seem to have attractive long-term growth potential, which can help Wesfarmers shares.
Older Australians
Growth is great, and an important element of any good investment. But, the older someone is, the more they may value stability. In my eyes, Bunnings, Kmart and Officeworks are some of the strongest retailers in Australia. We saw in 2020 how importantly people value Bunnings and Officeworks’ products, even during a pandemic. The last year or two has shown how people want to find good value products in this era of high inflation, with Kmart and Bunnings benefiting from households focusing more on price.
To me, all of the above says to me that Wesfarmers can deliver resilient earnings, even if there’s a potential recession on the horizon (or not).
The stable profit can allow the business to keep paying dividends.
Dividend income investors
Wesfarmers shares don’t necessarily have a huge dividend yield, but it’s a solid yield thanks to the healthy dividend payout ratio.
I’m not sure what the next dividend payments are going to be, so I’ll use the last two dividend payments.
Wesfarmers’ last two dividends total up to $1.94, which is a dividend yield of 2.9%, or 4.2% if we include the franking credits.
