The S&P/ASX 200 Index (ASX: XJO) is full of ASX dividend shares that could be solid ideas to own for long-term passive dividend income.
Dividends can be a very effective and rewarding way for investors to benefit from the profits a business generates, without having to sell those shares.
For investors relying on dividend income, it's the businesses with strong operations that could be the best ones to own for the years to come. I think these three are contenders.
Telstra Group Ltd (ASX: TLS)
Telstra is the leading ASX telco share, with the biggest market share and a number of additional businesses on top of its core mobile division. The company recently bought a telco called Digicel Pacific which services a number of Pacific island nations. It's also growing a division called Telstra Health, which is there to help the healthcare sector and patients digitally.
The transition to the NBN was not a good time for the business or its profit. However, that has now finished and the business is expecting to grow its underlying earnings per share (EPS) at a compound annual growth rate (CAGR) in the "high-teens" to FY25.
This could enable a stable and growing dividend for the ASX 200 dividend share in the coming years, as it cuts costs, grows mobile fees in line with inflation and rolls out 5G. I think the outlook is looking good.
The FY22 final dividend was grown by 6.25% to 8.5 cents. An annual dividend of 17 cents per share in FY23 would translate into a grossed-up dividend yield of 6% at the current Telstra share price.
Macquarie Group Ltd (ASX: MQG)
I think that Macquarie is one of the leading global financial institutions. It has four different divisions – a banking and financial services (BFS) division, an investment banking segment called Macquarie Capital, an asset management division called Macquarie Asset Management and a division called commodities and global markets (CGM).
At different points of the economic cycle, each of these businesses can perform well and produce strong profits for the business.
Macquarie has a dividend payout ratio policy to pay between 50% to 70% to shareholders. In the FY23 first-half result, it paid an interim dividend of $3 per share, representing a dividend payout ratio of 50%. This came after half-year net profit grew by 13% to $2.3 billion.
This level of payout means there is plenty of profit to reinvest back into the ASX 200 dividend share for more long-term growth. I think that's the right strategy.
The broker Morgan Stanley's dividend estimate puts the FY23 grossed-up dividend yield at around 4.2% at the current Macquarie share price.
Coles Group Ltd (ASX: COL)
Coles is a leading supermarket business. I think Coles could be considered as a very defensive ASX share, though it's unlikely to grow at a rapid pace either due to its size and the rate of population growth.
However, the ASX 200 dividend share is investing over $1 billion into automated warehouses which could improve efficiencies, stock flow and profit margins in the coming years.
The business is paying a relatively high dividend payout ratio, providing an attractive dividend yield, while still keeping some of the profit to invest in the business and open new supermarkets.
Morgans, a broker, thinks that Coles could pay a grossed-up dividend yield of 5.5% in FY23 at the current Coles share price.
