2 ASX 200 dividend shares that could offer good income

There might be some S&P/ASX 200 Index (ASX:XJO) shares that can offer solid dividend income, like Magellan Financial Group Ltd (ASX:MFG).

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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%.

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Returns As of 15th February 2021
Motley Fool contributor Tristan Harrison owns shares of Magellan Financial Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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