The S&P/ASX 200 Index (ASX: XJO) income shares in this article have lower share prices than they did at the start of 2022. I think this means it's a good time to consider investing in them because of the higher perspective dividend yields.
When a share price falls, it boosts the potential yield we get from a business. For example, if a business had a 5% dividend yield and falls 10%, then the yield on offer becomes 5.5% if the dividend payout doesn't change.
After all of the interest rate changes and inflation, these two ASX 200 income shares could be quality picks.
Image source: Getty Images
Charter Hall Long WALE REIT (ASX: CLW)
A real estate investment trust (REIT) may not sound like the best idea during this period, but there seem to be some compelling reasons to consider it.
It owns a national property portfolio across a range of sectors, including logistics, pubs, service stations, agribusiness and so on. As the name suggests, it has a long weighted average lease expiry (WALE). In other words, the tenants are signed up for a long time, providing rental security and visibility for the REIT.
This could be a smart buy because there's a much higher dividend yield on offer from the ASX 200 income share after the 25% fall from April 2022. According to Commsec, the business might pay a distribution per unit of 28 cents in FY24. This factors in a reduction of rental profit and distribution compared to FY22, but still represents a distribution yield of 7%.
At the end of the first half of FY23, it had a WALE of 11.8 years, so there's long-term visibility for the business.
While interest rates may affect valuations, I believe the Charter Hall Long WALE REIT share price decline reflects that pain. As we can see on the chart below, it's close to its 5-year low, aside from the COVID-19 crash.
Its rental revenue continues to grow, with half of the leases having inflation-linked annual reviews, and the other half having annual fixed increases, with an average increase of around 3%. I think the rental growth can offset a lot of the higher interest cost burden.
APA Group (ASX: APA)
This ASX 200 income share owns a large energy infrastructure portfolio. It has a massive natural gas pipeline around Australia, transporting half of the nation's usage. It's also invested in other gas assets, like storage and a power plant. The business is adding pipelines to its network, unlocking even more cash flow.
It's also growing its portfolio to other energy areas. For example, it's steadily building renewable energy generation with wind and solar farms. The business also recently bought the Basslink power cable, which is capable of transporting renewable hydropower from Tasmania to the mainland and can take power from the mainland to Tasmania if needed.
Nearly all of APA's gas revenue is contractually linked to inflation, so it's benefiting from this period of higher inflation.
The ASX 200 income share is going to pay an annual distribution per security of 55 cents for FY23, which is 3.8% higher than FY22. Yet, the APA share price is down close to 20% over the last year.
The distribution per security is forecast to grow to 58 cents in FY24, according to Commsec, which implies a possible yield of just under 6%. It has increased its distribution every year for close to 20 years.
