ASX 200 (ASX: XJO) shares can be a really good place to look for dividends. I think some ASX 200 dividend shares are worth owning for income.
But just because a business pays a dividend, doesn’t mean that it’s a good dividend stock. Look at what happened to businesses like Westpac Banking Corp (ASX: WBC), Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) all heavily cut their dividends in 2020.
What businesses are worth thinking about? I think these two are quality options:
Evolution Mining Ltd (ASX: EVN)
Gold miners are an interesting idea in this era of potential inflation and interest rate rises. Gold has, historically, kept up with inflation over the centuries and sometimes gold goes up when other asset prices goes down. So, whilst gold miners do come with all of the normal mining and commodity risks, a gold miner is an intriguing idea.
Evolution’s gold mines are only located in predictable and reliable countries like Australia, so it’s lower risk than some of the other miners on the ASX.
Evolution has a track record of growing its dividend over the last few years. Whilst the FY21 half-year result didn’t come with a dividend increase, management still maintained it at a very solid level and this equates to a good dividend yield.
In that result, the ASX 200 dividend share reported a 1% increase of net mine cash flow to $353.9 million and a 57% increase in underlying net profit after tax to $234 million.
At the current Evolution Mining share price, it has a fully franked dividend yield of 4.2%.
Magellan Financial Group Ltd (ASX: MFG)
Magellan, which is a fund manager, has a very generous dividend payout ratio policy.
It looks to pay ordinary interim and final dividends based on 90% to 95% of profit of the funds management business, excluding crystallised performance fees.
The ASX 200 dividend share also pays annual performance dividends of 90% to 95% of net crystallised performance fees after tax.
Magellan has a very profitable funds management segment because of how large it is. Once a fund manager has the right investment team and distribution team in place, a lot of the new funds under management (FUM) inflows can just fall to the bottom line as profit.
Profit can also grow in the future thanks to its investments in things like new Aussie investment bank Barrenjoey – which has already built a high quality team of people – and popular (and globally growing) Mexican food outlet chain Guzman y Gomez.
As long as Magellan can grow its FUM over the long term, then the partially franked dividend yield of 5.1% looks very attractive for income investors.
