ASX 200 shares can be a great place to find dividend income, if you know where to look.
The trouble with many of the most popular ASX 200 shares is that I don’t think they’re very reliable. The COVID-19 period showed how vulnerable they are. The banks were suffering economically, but they were forced by the regulator to hold onto more capital as well. The infrastructure shares cut dividends too. Telstra Corporation Ltd (ASX: TLS) managed to maintain the dividend, but its dividend income has dropped significantly over the last few years.
I’m looking for businesses that are regularly growing their dividends. That’s why I reckon these two are solid long term income ideas:
Magellan Financial Group Ltd (ASX: MFG)
Funds management business Magellan is an attractive source of dividends in my opinion. Fund managers don’t need to hold on to much capital to grow the business organically. That means that Magellan can maintain a high dividend payout ratio and still grow profit comfortably.
In FY20 it saw adjusted net profit after tax rise by 20% to $438.3 million and this led to a final dividend of $1.22 which was up 10%. Total dividends were up 16% to $2.149 per share.
Average funds under management (FUM) increased by 26% to $95.5 billion during FY20. Right now the Magellan FUM is tracking at over $100 billion, which should mean an increase in the ordinary dividend.
As long as Magellan’s after-fee returns for investors are solid, I think its FUM can keep growing from investment returns as well as steady inflows. Other growth avenues for the company include exchange-traded funds (ETFs), a retirement product and investments in private businesses such as Guzman y Gomez, which was the most recent investment.
Magellan has a partially franked dividend yield of 4.5% at the time of writing.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I think that WHSP can claim to be the king of dividends on the ASX owing to the fact it has the longest streak going for consecutive dividend increases, going back to 2000.
In my opinion, having a reliable (and growing) dividend is the most important thing when it comes to dividends. If I relied on income, I wouldn’t want my dividends disappearing precisely when I need them most (like a recession).
WHSP runs a good diversification strategy, it’s spread across many asset classes like agriculture, swimming schools, telecommunications, building products, resources and healthcare. Not too long ago the ASX 200 company tried to buy aged care operator Regis Healthcare Ltd (ASX: REG). The deal didn’t go through, but it shows the type of businesses that WHSP likes – long term ideas, industry leading businesses and priced at a discount.
The WHSP net cashflow is growing over the years, allowing the business to both fund the rising dividend and invest into new opportunities. WHSP has been going for over a century, so I think the next decade of dividends look pretty secure.
WHSP has a fully franked dividend yield of 2.1% at the time of writing.
Other ASX dividend shares to think about could include Brickworks Limited (ASX: BKW) and Collins Foods Ltd (ASX: CKF).
