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Owning Wesfarmers Ltd (ASX: WES) shares could be an excellent choice for retirees because of the mix of what the business can provide across defensive earnings, dividend growth and dividend yield.
While retirees may be attracted to the idea of high-yield businesses, and they do have their place, I think a business like growing a blue-chip business such as Wesfarmers could be an essential pick.
Wesfarmers is certainly not a famous name, but it owns multiple high-quality businesses that are loved by Australians.
Defensive earnings
As a retiree, I don’t want to see the profit of my business sink every time an economic downturn comes along.
I think the last five years has shown how defensive the business can be and perform in all economic circumstances (with the COVID-19 lockdowns, the retail boom and the high interest rate period).
Wesfarmers owns a number of businesses with resilient/consistent earnings such as Kmart, Bunnings, Priceline and Officeworks.
It’s also invested in other uncorrelated areas such as chemicals, energy and fertilisers (WesCEF), enabling the wesfarmers to diversify its earnings streams and unlock different ways to grow profit.
The company has plans to grow in the healthcare sector, which is a very large sector with both defensive earnings and ageing population tailwinds.
Dividend growth
Wesfarmers has grown its annual dividend per share each year since the demerger of Coles Group Ltd (ASX: COL) several years ago.
I like dividend growth because it’s a good sign of earnings growth, protects against the effect of inflation, and helps us live wealthier lives.
Wesfarmers has a stated goal of growing its payout for shareholders:
With a focus on generating strong cash flows and maintaining balance sheet strength, the group aims to deliver satisfactory returns to shareholders through improving returns to shareholders through improving returns on invested capital.
As well as share price appreciation, Wesfarmers seeks to grow dividends over time commensurate with the performance in earnings and cash flow. Dependent upon circumstances, capital management decisions may also be taken from time to time where this activity is in shareholders’ interests.
In FY25, Wesfarmers grew its annual dividend per share by 4% to $2.06. It also decided to announce a proposed capital management distribution of $1.50 per share.
Dividend yield
While dividend growth is useful, as a retiree I’d also want to see that the starting dividend yield when owning Wesfarmers shares is appealing too.
The FY25 annual dividend per share translates into a grossed-up dividend yield of 3.5%, including franking credits.
Remember, that’s just the starting dividend yield, if Wesfarmers continues growing its payout then the yield will become larger in the coming years.
Overall, I think the business has a lot to offer retirees, today, even if the valuation is a bit higher than it used to be.