Wesfarmers stock forecast: Is WES share price fall a threat to increasingly generous dividend payout?
The share price for Australian conglomerate Wesfarmers (WES) has fallen by around 22% so far this year, as rising inflation and higher interest rates are expected to weigh on consumer spending. Commodity price volatility has added to the uncertainty.
Wesfarmers has paid a twice-yearly dividend since 1985, but cut its payout earlier this year as its earnings were hit by lockdowns during the Delta wave of the Covid-19 pandemic.
Could the dividend come under further pressure from the economic slowdown or is it well covered?
In this article, we look at the stock’s recent performance and the latest Wesfarmers stock predictions.
What is Wesfarmers?
Wesfarmers was formed in Western Australia in 1914 as a farmers' cooperative. It has since grown into a conglomerate and one of the country’s largest publicly traded companies. Its businesses are diversified across “home improvement and outdoor living; apparel and general merchandise; office supplies; health, beauty and wellbeing; chemicals, energy and fertilisers, and industrial and safety products”, according to its website.
The company is looking to expand further into mining and processing of electric vehicle battery metals. Its Mt Holland joint venture with Chilean mining and chemicals producer SQM approaches planned production of lithium hydroxide chemicals in 2024.
Wesfarmers is one of the largest employers in Australia, with more than 100,000 employees. It has a shareholder base of around 515,000.
The company was listed on the Australian Securities Exchange (ASX) in 1984 and started paying a dividend the following year. It is one of the constituents of the S&P/ASX 200 Index (AU200), a market-capitalisation weighted and float-adjusted stock market index of the 200 largest stocks listed on the ASX.
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Wesfarmers share price reflects slowdown
The WES share price peaked at an all-time high of A$66.06 in August 2021, ahead of its financial year 2021 earnings results. Wesfarmers initially benefited from Covid-19 lockdowns, with remote work and home entertainment supporting strong demand for some of its products, allowing the company to benefit from its investments in digital retail.
But the WES stock price subsequently began to fall as the company stated in its financial results that the impact of extended Covid-19 lockdowns on household and business confidence was becoming more pronounced. It warned that further widespread restrictions would negatively affect its business activity and trading performance.
Retail sales from its Bunnings, Kmart and Target divisions for the 2022 financial year-to-date declined. Wesfarmers expected ongoing disruptions to create additional costs.
The WES stock price ended 2021 at A$59.30, down 10.2% from the high. The price dropped further in February 2022, reaching A$47.75 as the company cut its dividend by 9% and the Russian invasion of Ukraine prompted a selloff in risk assets.
The stock moved up to A$51.17 in March, but was unable to hold onto the gains and dropped to A$41.16 in mid-June, its lowest level since May 2020.
The share price rose to A$48.97 in mid-August, but it was unable to breach the $A50 mark and the stock dropped to A$42.80 in early October. The dip has attracted investors that view the stock as a value play, pushing up the share price to A$47.82 on 11 November, before it closed at A$46.70 on 15 November.
The company’s financial health: 2022 full-year report
On 26 August, Wesfarmers reported an 8.5% year-on-year increase in revenue to A$36.8bn for the 2022 financial year, and a 1.2% drop in net income to $2.35bn.
The results reflected the impact of Covid-19 on trading conditions during the first half of the financial year, which included periods where almost half of the company’s retail stores were closed or operated under trading restrictions. Net income rose by 13.1% in the second half of the year, as market conditions improved when restrictions were eased. The company stated:
“The Australian economy is starting from a strong base with low unemployment and high levels of household savings, but the effects of inflation and higher living costs are placing pressure on parts of the economy, including household budgets. The Group continues to actively manage inflation, leveraging its scale and sourcing capabilities to mitigate the impact of cost increases. While general inflation remains elevated, prices for some inputs such as cotton, timber and plastic resins have moderated in recent months.”
Looking ahead to the 2023 financial year, Wesfarmers added: “Retail trading conditions have remained robust through the first seven weeks of the 2023 financial year. Sales growth has been particularly strong in Kmart Group, with sales significantly higher on both a one year and two year basis. Bunnings also continues to see positive sales growth, on a one year and two year basis. Sales in Officeworks were in line with the prior year. The performance of the Group’s industrial businesses remain subject to international commodity prices, foreign exchange rates, competitive factors and seasonal outcomes.”
Wesfarmers will pay a final fully-franked dividend of A$1.00 a share, bringing its total dividends for the year up 1.1% to $1.80. A franking credit refunds the tax a company has already paid in Australia on its profits, so that shareholders are not taxed again.
At the current share price, the Wesfarmers trailing 12-month dividend yield is 3.84%, below its five-year average of 4.23%. The dividend payout ratio is high at 81.89%, above the 70% mark that is considered sustainable. However, Wesfarmers typically maintains a high payout ratio of 80-90%, as it prioritises returning capital to its shareholders.
What is the latest Wesfarmers stock forecast as Australia faces an economic slowdown?
Below, we look at the WES share price predictions from analysts and forecasters.
Wesfarmers stock forecast: Should you buy the dip?
Morningstar analyst Johannes Faul expects the WES share price to weaken slightly from the current level: “Despite rising inflation and monetary tightening, Australians haven’t cut back their spending on discretionary items. Sales are bolstered by rampant inflation in some categories, but consumer demand measured in volumes is also well above trend levels.
“However, we expect sales growth for most Australian discretionary retailers to weaken in the near term, compared with the last three years which were marked by significant distortions in consumer spending habits… we forecast sales growth to moderate as consumers increasingly reallocate spending to services from goods.”
According to Morningstar’s WES stock forecast: “Our outlook of moderating discretionary spending is reflected in our unchanged earnings estimates for Australian discretionary retailers covered by Morningstar. We reiterate our fair value estimates for: wide-moat Wesfarmers at AUD 41.00 per share.”
At the time of writing (16 November), the Wesfarmers stock forecast from data provider Trading Economics predicted that the price could stabilise to end 2022 at A$46.54 but then fall to A$42.91, based on global macro model projections and analysts’ expectations.
In the meantime, in its Westfarmers stock forecast for 2023, algorithm-based forecaster Wallet Investor projected that the share price could rise to A$50.987, from A$46.981, at the end of 2022. The stock could then rise further to A$59.017 by the end of 2025 and A$66.249 in five years’ time.
The Wesfarmers stock forecast for 2025 from AI Pickup suggested a volatile outlook, with the stock dropping from A$38.58,to an average A$25.40 per share in 2023. But the longer term WES stock forecast showed that the share price could rebound later in the decade to reach an average of A$68.77 in 2028 before retreating to A$40.06 in 2030.
If you are looking for a Wesfarmers share price forecast to inform your trading decisions, it’s important to keep in mind that market volatility makes it difficult for analysts and algorithm-based forecasters to come up with accurate long-term predictions.
We recommend that you always do your own research. Look at the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision. Keep in mind that past performance is no guarantee of future returns. And never invest money you cannot afford to lose.
FAQs
Is Wesfarmers a good stock to buy?
As with any stock, you should do your own research to determine whether WES is a good fit for your investment portfolio. Keep in mind that past performance is no guarantee of future returns.
Will Wesfarmers stock go up or down?
The direction of the WES share price could depend on the impact of inflation and high interest rates on the Australian economy, as well as prices for the commodities that Wesfarmers buys and sells, among other factors.
Should I invest in Wesfarmers stock?
Whether WES is a suitable investment for you depends on your risk tolerance, portfolio composition and how much you intend to invest. You should do your own research to develop an informed view of the stock. Keep in mind that past performance is no guarantee of future returns. And never trade money that you cannot afford to lose.
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