Broker tips 2 ASX 200 dividend shares with major upside AND juicy yields

Telstra is one of the ASX 200 dividend shares that one broker believes are buys.

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Key points

  • These two dividend shares in the ASX 200 are rated as buys by broker Ord Minnett
  • Telstra is the leading telco in Australia
  • Bapcor has a number of auto part businesses, including Burson and Autobarn

Experts believe that some S&P/ASX 200 Index (ASX: XJO) dividend shares are good opportunities and could also pay pleasing investment income in the coming years.

While a business isn’t a buy just because it pays a dividend, there are some companies where the valuation is attractive and that company’s dividend can add to the potential returns.

Businesses that are expected to pay attractive dividend yields may be appealing in a climate where capital growth is difficult. But who knows what’s going to happen next?

With that in mind, here are two ASX 200 dividend shares that one particular broker is a fan of.

Telstra Corporation Ltd (ASX: TLS)

Telstra is the largest telecommunications company in Australia, with a market capitalisation of $45 billion, according to the ASX.

It’s currently rated as a buy by the broker Ord Minnett, with a price target of $4.85. That implies a possible rise of more than 25% on its current share price of $3.875.

It thinks the telco will be successful in increasing mobile revenue, with a rise in average revenue per user (ARPU). This will help grow earnings before interest, tax, depreciation and amortisation (EBITDA).

The broker is expecting Telstra to pay a grossed-up dividend yield of 5.9% in FY22 and FY23 with the 16 cents per share annual dividend. Telstra itself has said it wants to keep paying this level of dividends for investors.

The ASX 200 dividend share is looking to grow its dividends over time as its profit and cash flow grow. Telstra sees its competitive position with 5G as an important factor that will help profit growth.

Bapcor Ltd (ASX: BAP)

Bapcor is a leading auto parts company in Australia and New Zealand with a number of businesses, including Burson Auto Parts, BNT, Autobarn, Autopro, Midas, ABS, Shock Shop, and Battery Town.

It’s currently rated as a buy by the broker Ord Minnett. The price target is $8.60, with implies a potential rise of around 40% on the current share price of $6.13.

One of the main reasons for its optimism was a trading update for the FY22 third quarter, where Bapcor said it performed “strongly with strong market demand”, without the impact of lockdown and the level of supply chain disruption in the first half of the financial year.

Year on year, trade revenue increased 5.3% for the quarter and specialist wholesale revenue increased 10.1%.

The ASX 200 dividend share said the fundamental drivers of the automotive aftermarket remain “strong” and are expected to continue to do so. In FY22, Bapcor is aiming to deliver pro forma earnings of at least the level of FY21.

Another thing the broker likes about the business is its potential growth in Asia, where it is expanding with its Burson brand and also benefiting from the Tye Soon stake it owns. Tye Soon is a similar business to Bapcor, operating in South East Asia.

According to Ord Minnett, Bapcor is expected to pay a grossed-up dividend yield of 5.2% in FY22 and 5.6% in FY23.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Bapcor. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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