There are some S&P/ASX 200 Index (ASX: XJO) shares that have quite high dividend yields whilst also offering investors the potential of long-term growth.
Not every ASX 200 share has been growing their dividend. Many ASX 200 companies cut the dividend in 2020. Whilst others, like Telstra Corporation Ltd (ASX: TLS), are just maintaining the dividend each year.
These two have a track record of growing their ordinary dividends for shareholders:
Rural Funds Group (ASX: RFF)
Rural Funds has increased its distribution every year since it listed several years ago. At the current share price, Rural Funds has a FY21 distribution yield of 4.6%.
The ASX 200 business is a real estate investment trust (REIT) that owns farmland across Australia. It’s invested in variety of sectors – cattle, vineyards, almonds, macadamias and cropping (cotton and sugar).
Its underlying value is steadily rising. That’s measured by the adjusted net asset value (NAV), which includes its water entitlements at market value. The ASX 200 dividend share owns a substantial amount of water entitlements for use by the tenants.
At the end of the FY21 half-year result, Rural Funds’ adjusted NAV had grown by another 4% to $2.01.
Thanks to built-in rental increases, farm productivity improvements and occasional acquisitions, Rural Funds has been able to steadily grow its adjusted funds from operations (AFFO) over the years. AFFO is essentially the rental profit. This is what funds the distribution growth.
Management aim to grow the distribution by 4% per annum. In FY22 it expects to pay a distribution of 11.73 cents per unit, which will be a distribution yield of 4.75%.
Magellan Financial Group Ltd (ASX: MFG)
Magellan is an ASX 200 share that pays out a high level of its annual profit each year to investors. It generates management fees from its funds under management (FUM). Magellan can also generate performance fees if its funds do better than the benchmark.
In its FY21 half-year result, it saw management fees grow by 8% to $309.4 million and the funds management business saw profit before tax and before performance fees saw 8% growth to $256.2 million. That scalability of the business allows it to maintain a payout ratio north of 90% whilst continuing to grow.
The ASX 200 share’s HY21 net profit after tax grew 3% to $202.3 million and diluted earnings per share (EPS) rose 2% to 110.6 cents. That allowed the interim dividend to grow by 5% to 97.1% with a franking rate of 75%.
Magellan is now looking at high quality external investments that have high quality management, meaningful scale, contributes to the intellectual capital of the business, has optionality and can produce good returns. Its first three investments have been Barrenjoey, Finclear and Guzman y Gomez.
During April 2021, Magellan’s funds under management (FUM) increased by $4.4 billion over one month. This will help grow management fee profitability, as well as the dividend.
Magellan is currently rated as a buy by Ord Minnett, with a price target of $52. In FY21, it expects Magellan will pay a partially franked dividend yield of 4.8%.