The last six months has seen ASX share market volatility flare up. Are things looking up for S&P/ASX 200 Index (ASX: XJO) dividend shares, or is there worse to come?
There are plenty of businesses in the ASX 200 known for paying large dividends.
Names like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Rio Tinto Limited (ASX: RIO), National Australia Bank Ltd (ASX: NAB), Fortescue Metals Group Limited (ASX: FMG), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Woodside Energy Group Ltd (ASX: WDS) and Westpac Banking Corp (ASX: WBC) may spring to mind.
Some readers may have realised that these are many of the largest businesses on the ASX.
On the whole, the ASX 200 is known for paying a larger dividend yield than many other indices.
So let's have a look at the outlook for some of these segments of the market.
Banks
The big four ASX banks have a large collective position in the ASX 200.
In the context of rising interest rates, it's widely expected that central banks increasing rates will help bank net interest margins (NIMs).
The NIM is an essential bank profitability measure because it shows how much profit a bank is making compared to the cost of that funding money. One of the main costs for banks is the interest they pay to savers with savings accounts.
However, while the NIM may rise, some brokers such as Macquarie suggest that banks could suffer from lower lending growth as well as higher bad debt charges.
But, brokers like Macquarie do think that the big four ASX banks can grow the dividend over the next couple of financial years.
Resources
The outlook for each commodity and ASX mining share can be different. But, miners can generate strong cash flow, turning them into leading ASX 200 dividend shares.
However, the future may be becoming a bit more uncertain for BHP, Fortescue and Rio Tinto as the iron ore price falls, with Chinese demand seemingly not coming back strongly (yet) after the COVID-19 lockdowns.
Some brokers like UBS are not convinced. UBS is neutral on Rio Tinto and BHP, with price targets implying there won't be material capital growth over the next 12 months. It is neutral on Fortescue as well, though the price target is $18.70 – this is a potential upside of around 10%.
Inflation and interest rates
The investment environment has become trickier with inflation and supply chain difficulties impacting many areas of the economy, while interest rate hikes can have negative impacts on asset values.
It will be interesting to see what happens next, though there are other ASX 200 dividend shares I'd be personally more interested in including Wesfarmers Ltd (ASX: WES) and Telstra Corporation Ltd (ASX: TLS).
