ASX 200 Mining shares have been getting a lot of attention lately, particularly for their supercharged dividends. But one fund manager believes some potential dividend gems can be found in another sector altogether.
Investors Mutual portfolio manager Michael O'Neill has revealed why he does not rely on the resources sector for dividend heavyweights, but instead prefers shares in the industrials sector.
Let's take a look at why.
Long-term performance of ASX 200 dividend shares
O'Neill highlighted that in the period from 2011 to 2021, ASX 300 industrial shares delivered a higher income return than their ASX 300 resources counterparts in 8 out of the 11 years.
Only in 2020 and 2021, did resources shares beat industrials when it came to annual income returns.
However, Australia's mining giants are tipped to produce huge dividend yields overall in FY22. As my Foolish colleague Tristan reported recently, Macquarie is tipping BHP Group Ltd (ASX: BHP) to pay a 16% dividend yield in FY22. Meanwhile, analysts at Macquarie tip Rio Tinto Limited (ASX: RIO) to pay 16.3% and Fortescue Metals Group Limited (ASX: FMG) to pay 14%.
Furthermore, the latest Janus Henderson Group (ASX: JHG) Global Dividend Index report identified BHP as the highest dividend payer in the world for the March quarter. ASX dividends overall also leapt 38.9% in the quarter.
O'Neill, however, cautions investors against purely chasing the highest dividend payers each year.
Instead, he recommends a diverse portfolio that will pay strong dividends throughout the economic cycle.
Speaking to Livewire, he said:
Unfortunately, the fortunes of resources companies fluctuate significantly, as does the size of their dividends. Resources stocks might have standout years for paying dividends, or even standout multi-year-runs (like 2020 and 2021) but this kind of dividend yield for resources is unsustainable.
For reliable income over the longer term, O'Neill instead recommended ASX Industrials shares including Aurizon Holdings Ltd (ASX: AZJ) and Brambles Limited (ASX: BXB). He commented that these "might not be household names but generate high dividends, year after year, in good times and bad".
Highlighting why he likes industrial shares, O'Neill added many of these companies now have excess capital to return to shareholders, having been conservative with their payouts since 2019.
Based on the current share price, Brambles has a trailing dividend yield of 2.64%. Meanwhile, Aurizon shares currently offer a trailing dividend yield of 6.22%.
Share price snapshots
The Brambles share price has lifted by around 4% over the past year, while Aurizon shares have surged by almost 12%.
In the year to date, Brambles shares have gained 4.3%, while Aurizon shares are up almost 15%.
For perspective, the S&P/ASX 200 Index (ASX: XJO) has gained around 1.2% over the past year.
