The S&P/ASX 200 Index (ASX: XJO) dividend shares that I'm about to reveal could be two of the most underrated ideas for passive income for many years ahead.
The dividend income that many ASX bank shares and mining shares pay has been impressive over the past decade.
However, I think it's useful to have diversification at the very least.
Over the long-term, I think there are a number of names that could be better dividend payers – whether that's with more growth, possibly better reliability, or however else we want to judge a passive income-paying business.
With that in mind, I think the following two names are worth a spot in a dividend-focused portfolio.
Collins Foods Ltd (ASX: CKF)
Collins Foods is a fast food business that has a goal of being the "world's top restaurant operator". At this stage, it operates KFC outlets in Australia and Europe, and also has a small but growing network of Taco Bell restaurants in Australia. It currently has around 15,000 KFC and Taco Bell employees.
According to Collins Foods, it has 270 KFCs in Australia, 16 KFCs in Germany, 48 KFCs in the Netherlands, and 26 Taco Bells in Australia.
I believe it's possible that fast food businesses can provide defensive earnings during a recession, perhaps even growth, as people look to fast food as a treat during a downturn, perhaps as a cheaper alternative to other dining options.
Collins Foods has dropped 17% from 28 November 2022, making it considerably cheaper than it was before. It has grown its dividend each year since 2014, making it one of the most consistent ASX 200 dividend shares around.
While underlying net profit after tax (NPAT) fell in its most recent result, I don't think the challenging environment with food inflation will continue forever. The business continues to grow its store numbers and same-store sales grew in both Australia and Europe in the first six months of the second half of FY23.
Commsec numbers suggest the business could pay a grossed-up dividend yield of 4.8%, with a 3.7% increase projected for passive income in FY23 to 28 cents per share.
Charter Hall Long WALE REIT (ASX: CLW)
This is an Australian real estate investment trust (REIT). It aims to invest in "high quality Australasian real estate assets that are predominately leased to corporate and government tenants on long-term leases". The current weighted average lease expiry (WALE) is around 12 years.
It's invested in a number of different sectors including office, industrial, logistics, retail, and social infrastructure.
Some of its tenants include the Australian government, Telstra Group Ltd (ASX: TLS), BP, and Endeavour Group Ltd (ASX: EDV).
Higher interest rates can have a negative impact on REITs with both a higher interest cost and an impact on property values. Charter Hall Long WALE REIT isn't experiencing large hits to its valuations (yet). But, the ASX 200 has already fallen 22% over the last 12 months, which I think is a fair reflection of how much lower it should be priced in this environment.
But, with the strong inflation, some of the rental income is getting a boost because the growth rate is linked to inflation. That could be helpful for the passive income from the ASX 200 dividend share.
The REIT has guided that it's going to pay a distribution of 28 cents per unit for FY23, which is a distribution yield of 6.7%.
