The S&P/ASX 200 Index (ASX: XJO) is home to some really good ASX 200 dividend shares that could be worth owning for dividends.
Some businesses didn’t manage to grow the dividend in 2020 because of COVID-19, but there were a few that managed to grow both the dividend and the profit in FY20. That growth has continued into FY21.
These two businesses could be really good options for dividends:
Fortescue Metals Group Limited (ASX: FMG)
Fortescue is one of the biggest miners in the world and it has also been one of the ASX 200 shares paying the biggest dividends as well.
The business has been benefiting from a really strong iron ore price, with lower production in Brazil and continued high demand from China. In the first half of FY21, the realised price was 42% higher to US$114 per dry metric tonne.
Fortescue’s half-year revenue climbed 44% to US$9.3 billion, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) went up 57% to US$6.6 billion and net profit after tax (NPAT) grew 66% to US$4.08 billion.
It was the above strength that allowed management to declare a whopping 93% increase in the interim dividend to AU$1.47 per share. The board are aiming for a dividend payout ratio of 80% of net profit going forwards. It plans to invest 10% in future resource growth opportunities and the other 10% to fund renewable energy growth through Fortescue Future Industries (FFI).
Fortescue plans to find and fund large-scale green resource and infrastructure opportunities, particularly relating to hydrogen.
The ASX 200 blue chip dividend share is rated as a buy by Credit Suisse, which has a price target of $23.50 on the miner and it expects it to pay a FY21 dividend of $3.62 per share, equating to a grossed-up dividend yield of 22% for this financial year.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is another business that has a strong reputation for shareholder returns.
The business has an array of strong-performing businesses like Bunnings and Officeworks which generate excellent returns and allow Wesfarmers to pay solid and growing dividends.
Bunnings is one of the best businesses in Australia and the FY21 half-year result showed that. It reported a 76.6% return on capital and underlying earnings before tax growth of 39% to $1.27 billion. Same store sales growth was 27.7% and online penetration increased from 0.4% to 3.1%.
Bunnings earned more than 60% of the core earnings before tax for Wesfarmers.
Wesfarmers’ continuing operations net profit increased by 23.3% to $1.39 billion and underlying earning per share (EPS) grew 25.5% to $1.25, allowing the interim dividend to rise by 17.3% to $0.88 per share.
One thing to note with the ASX 200 blue chip share is that retail sales growth is expected to moderate from March as the businesses begin to cycle against the initial impacts in COVID-19 where there were strong sales, particularly in Bunnings and Officeworks.
More dividend growth could be coming because Wesfarmers said that sales across the group’s retail businesses have continued to remain strong through January and February, with some impact from government-mandated trading restrictions.
Management said that the portfolio of cash-generative businesses with trusted brands and leading market positions are well placed to deliver satisfactory shareholder returns over the long-term.
At the current Wesfarmers share price, it has a projected grossed-up dividend yield of 4.7% according to Commsec.
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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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