The heavy declines of the ASX share market are having a big impact on share prices. Not only is this making S&P/ASX 200 Index (ASX: XJO) shares cheaper, but it's also boosting the potential dividend yield from ASX dividend shares.
Investors have been hitting the sell button as inflation soars and worries heighten about how central banks will respond to bring this under control.
But, with the heightened fears come potential buying opportunities. These two ASX 200 dividend shares look really good to me at these lower prices.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is one of the most diverse businesses in the ASX 200, in my opinion.
Not only does it have its retail operations of Bunnings, Kmart, Officeworks, Target, and Catch, but it also has businesses in other sectors, including industrial, chemicals, energy, fertiliser, lithium, healthcare, and stakes in other businesses.
There is a potential danger that inflation and other impacts could hurt Wesfarmers' retail earnings in the short term. Management said it wants to be a price leader for customers amid this inflation, which may indicate lower margins in the shorter term.
However, I think this economic situation will eventually pass, just like other bumpy economic periods in the past.
Governor Philip Lowe said last night the Reserve Bank of Australia is expecting inflation to peak at the end of 2022, with inflation "clearly dropping" into the second half of next year, with a lower rate of inflation in the first quarter. With that in mind, I think the lower Wesfarmers share price represents good value – it's down 30% in 2022.
Bunnings is a high-quality business, in my opinion. It generated around 70% of Wesfarmers' FY22 first-half underlying earnings before tax (EBT). It also made a return of capital of 79%, meaning that it makes a lot of profit for the amount of money invested in Bunnings.
Wesfarmers could go hunting for potential acquisition opportunities during this period by using its balance sheet flexibility and boost its long-term prospects further. The company generated $1.6 billion of operating cash flow in HY22, allowing it to pay dividends and invest substantially into the business for more growth.
Using estimates from CMC, the Wesfarmers share price is valued at 20x FY23's estimated earnings with a projected grossed-up dividend yield of 6.1%.
Washington H. Soul Pattinson and Co Ltd (ASX: SOL)
Soul Pattinson is one of my favourite ASX dividend shares and I recently bought more shares for my portfolio because I thought it looked more attractive after the decline — it's down 23% this year to date.
It operates as an investment house. The business owns a large portfolio of ASX shares including TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), New Hope Corporation Limited (ASX: NHC), Commonwealth Bank of Australia (ASX: CBA), Macquarie Group Ltd (ASX: MQG), Pengana Capital Group Ltd (ASX: PCG), and Tuas Ltd (ASX: TUA). These are just some of the biggest positions in the portfolio, but there are many more holdings.
The ASX 200 dividend share also has a growing portfolio of private business investments. Examples of those private businesses include electrical parts business Ampcontrol, swimming school business Aquatic Achievers, an agriculture portfolio, and financial service businesses.
Soul Pattinson's diversified portfolio lowers the risk of the overall business, in my opinion. It also gives management a broad range of target areas to look for investment opportunities.
The company has tried to build a defensive portfolio that can continue generating attractive cash flow during downturns, which can also fund dividends.
Soul Pattinson has grown its annual ordinary dividend to shareholders every year since 2000.
With the last 12 months of dividends totalling 65 cents per share, the ASX 200 dividend share has a trailing grossed-up dividend yield of 3.9%.
