S&P/ASX 200 Index (ASX: XJO) dividend shares can be a great source of dividend income if those businesses are committed to paying solid payouts to investors.
Keep in mind though that dividends are not guaranteed. Not only that, but share prices can go backwards as well.
I think it's important to ensure we look at ASX dividend shares at the right price. Indeed, the recent volatility in the market could prove useful in jumping on these opportunities at lower prices.
A bonus of lower prices is that it increases the prospective dividend yield of shares. On the back of lower share prices, I think these two ASX 200 dividend shares look like compelling options:
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JB Hi-Fi Limited (ASX: JBH)
In my opinion, JB Hi-Fi is one of ASX's leading retail shares. It has proven during the COVID-19 years that it is capable of capturing consumer demand for the technology we want in our lives.
Phones and computers are often seen as discretionary. But I think they have become more embedded in our lives over the years, making them a bit more 'essential'. This makes them less likely to suffer from a heavy drop in demand during economic downturns. Households will still need devices to work, learn, communicate, and so on. I think it was informative that in the three months to March 2022, JB Hi-Fi Australia sales were up 11.9% year on year and The Good Guys sales were up 5.5% year on year.
However, since 30 March 2022, the JB Hi-Fi share price has dropped 27%. This has pushed up the potential dividend yield on the company's shares.
In FY23 and FY24, JB Hi-Fi is predicted to pay an annual dividend per share of $2.32 and $2.18 respectively, according to estimates on CMC Markets. This puts the grossed-up dividend yield for the next two financial years at 8.2% and 7.7%, respectively. These estimates assume a sizeable dividend cut from the ASX 200 dividend share compared to the FY21 level, reflecting lower earnings.
South32 Ltd (ASX: S32)
South32 is one of the bigger resource businesses on the ASX. It has a global portfolio of projects across the Americas, Africa, and Australia. It's involved with bauxite, alumina, aluminium, copper, metallurgical coal, manganese, nickel, silver, lead, and zinc.
The South32 share price has dropped by around 33% since 8 June 2022.
The company's profit is heavily influenced by changing commodity prices. A higher commodity price largely adds to profit, because it costs a similar amount to extract that resource whether the resource price is US$10 higher or lower. But, a lower commodity price mostly detracts from profit.
Commodity prices have fallen in recent weeks. I think this could prove to be an opportunistic time to buy because of the cyclical nature of resources.
CMC Markets has estimates of annual dividends per share of 31.8 cents in FY23 and 28.3 cents in FY24. That translates into a projected grossed-up dividend yield of 13% in FY23 and 11.7%. Those look like solid yields to me, incorporating lower earnings and dividends compared to FY22.
