There could be some good in the S&P/ASX 200 Index (ASX: XJO) dividend shares that may be candidates for income.
Businesses that have grown to a certain large size have the potential to sustain a high dividend payout ratio and continue to keep growing earnings.
These two ASX 200 dividend income shares could be interesting candidates.
Magellan Financial Group Ltd (ASX: MFG)
Magellan is predominately a funds management business. It has over $100 billion of funds under management and it's rated as a buy by the broker Morgans with a price target of $58.26.
The company has a dividend policy of interim and final dividends being based on 90% to 95% of profit of the funds management business excluding crystallised performance fees. It also pays an annual performance fee dividend of 90% to 95% of net crystallised performance fees after tax.
Magellan makes a lot of profit from its funds management business. Higher funds under management (FUM) leads to higher management fees which largely falls to the net profit line.
In the FY21 half-year result, its management fees grew 8% to $309.4 million and the funds management business' profit before tax and before performance fees increased 8% to $256.2 million. That helped the interim dividend increase by 5% to 97.1 cents per share.
The ASX 200 dividend share continues to see long-term growth of FUM – in April 2021, total FUM rose from $106 billion to $110.4 billion. It's also making investments into private businesses that have long-term growth potential and can provide useful information to Magellan such as Barrenjoey and Guzman y Gomez.
Morgans thinks that Magellan is going to pay a FY21 dividend that amounts to a yield of 4.5% in FY21.
Charter Hall Long WALE REIT (ASX: CLW)
This is a real estate investment trust (REIT), it's one of the larger ones on the ASX with a market capitalisation of around $3 billion.
Charter Hall Long WALE REIT is currently rated as a buy by Citi with a price target of $5.30. The aim of the ASX 200 dividend share is to have a portfolio of properties that are rented to high-quality tenants with long leases.
The REIT recently announced acquisitions for a total cost of $415.4 million. It's buying the Services Australia building in Tuggeranong, ACT, for $153 million, the ATO building in Box Hill, Victoria, for $115 million, the Red Cross building in Alexandria, NSW, for $79.5 million and the ATO building in Albury, NSW, for $42.5 million.
It also settled the acquisition of a 100% interest in an Ampol Ltd (ASX: ALD) anchored long weighted average lease expiry (WALE) convenience retail property in Redbank Plains, Queensland, for $25.4 million.
These acquisition reflect a passing yield of 5.2%, with a long WALE of 9.2 years and a weighted average revenue review (WARR) of 3.6% per annum. It increases the exposure to government tenants from 16% to 21%.
Management believe the acquisition supports the ASX 200 dividend share's secure and growing income profile.
It now has 464 properties worth almost $5 billion with a 97.7% occupancy rate, a WALE of 13.8 years and a WARR of 2.3%.
The REIT aims to have a distribution payout of 100% of operating earnings per security (EPS). It's expecting to generate 29.2 cents of EPS in FY21, translating into a yield of 6.1%. The property business also provided FY22 operating EPS guidance of growth of at least 2.75% compared to FY21. That suggests an FY22 yield of around 6.3%.
