There are some S&P/ASX 200 Index (ASX: XJO) shares that are strong and offer good levels of income.
In this environment where interest rates are so low, but the future is uncertain, it could be interesting to look at businesses offer solid yields:
Magellan Financial Group Ltd (ASX: MFG)
Magellan is a large funds management business with a market capitalisation of around $8.75 billion.
The fund manager is currently rated as a buy by Morgans, which has a price target of $58.26 on Magellan.
It’s expecting the funds management business to pay a partially franked dividend of $2.06 per share. That translates to a partially franked dividend yield of 4.25%. Magellan has been steadily growing its ordinary dividend as the funds management profit keeps growing.
In the FY21 half-year result the profit before tax and performance fees generated by the funds management business grew 8% to $256.2 million and the interim dividend went up 5% to $0.97 per share. The dividend also grew in FY20, despite all of the impacts of COVID-19.
In March 2021, the total funds under management (FUM) went up 5.4% to $106 billion, which can help drive underlying profit higher. It experienced net inflows of $206 million for the month.
Not only is the ASX 200 share growing its core funds management business, but it has been making investments itself into other private businesses to help generate long-term growth. Examples include Barrenjoey and Guzman y Gomez.
According to Morgans, the Magellan share price is valued at 21x FY21’s estimated earnings.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is a business that has built a track record for paying dividends to shareholders. It had been steadily growing its dividend for a number of years prior to the the Coles Group Ltd (ASX: COL) divestment. Wesfarmers has continued to do well with its dividend.
In the FY21 half-year result the board decided to increase the interim dividend by 17.3% to $0.88 per share. That was supported by a 16.6% increase in continuing operations revenue to $17.8 billion and a 25.5% increase in continuing operations earnings per share (EPS) to $1.25 per share. This leaves plenty of the profit left in the hands of the business to invest for more growth.
A year ago the ASX 200 share was seeing a lot of growth for Bunnings and Officeworks as people invested in their homes with projects and ensuring they could continue to work or learn at home.
In the FY21 half-year result, those trends are continuing. Excluding Catch, online sales across the group more than doubled for the half. Including Catch, online sales were over $2 billion for the six-month period. Bunnings saw underlying earnings before tax increase by 35.8% to $1.275 billion, which is the key profit centre of Wesfarmers.
Growth of the dividend is expected for FY21. According to the estimates on Commsec, Wesfarmers is expected to pay a dividend of $1.76 per share in this financial year.
That translates to a fully franked dividend yield of 3.1%.
Retail sales growth is expected to moderate in the last few months of FY21 because of the strong sales in the early months of COVID-19 in 2020, particularly for Bunnings and Officeworks.
However, it’s pursuing other avenues of growth. It recently announced the joint approval of its final investment decision for the Mt Holland lithium project.
Management said the group will continue to develop and enhance the portfolio, building on its capabilities and platforms to take advantage of growth opportunities within existing businesses and to pursue investments and transactions that create value for shareholders over the long-term.