ASX 200 shares income investors seeking reliable high passive income via dividends must look at a few metrics when considering which ASX dividend shares to buy.
One of them is the dividend payout ratio.
This is the percentage of net income paid as dividends to shareholders.
Income investors naturally prefer to invest in companies that share more of their profits than the rest.
So, let's look into which ASX 200 shares are dishing out more of their profits than others.
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Which ASX 200 shares pay out more of their profits?
High payout ratios are much more common among large and mature ASX 200 businesses with steady cash flows.
A dividend payout ratio of 75% or thereabouts is fairly common with these shares.
Younger companies tend to have lower payout ratios. This is because they have to retain a good chunk of earnings to grow their businesses.
A payout ratio of 50% or less is typical for these types of ASX 200 shares.
Some companies deliberately set a 'dividend policy' to establish themselves as strong and reliable dividend payers. They publish and publicise their policies to help them attract more investors.
Which ASX 200 shares pay out more of their profits?
Here is a selection of ASX 200 shares with published dividend payout ratios (from highest to lowest):
HomeCo Daily Needs REIT (ASX: HDN) has a target payout range of 90% and 100% of funds from operations.
ASX 200 property share Goodman Group (ASX: GMG) has just amended its distribution policy to target a payout ratio of 80% and 90% of cash earnings.
The Commonwealth Bank of Australia (ASX: CBA) targets a full-year payout ratio of 70% to 80%.
ASX 200 mining share Fortescue Metals Group Ltd (ASX: FMG) has a dividend policy of paying 50% to 80% of full-year net profit after tax (NPAT).
Fletcher Building Ltd (ASX: FBU) has a target dividend payout ratio of 50% to 75% of net earnings.
Ampol Ltd (ASX: ALD) intends to pay dividends of 50% to 70% of the full-year replacement cost of sales operating profit after tax (excluding significant items), subject to various conditions.
The BHP Group Limited (ASX: BHP) dividend policy is a minimum 50% payout of underlying attributable profit.
ASX 200 energy share Woodside Energy Group Ltd (ASX: WDS) aims to maintain a minimum dividend payment payout ratio of 50% of net profit, excluding non-recurring items.
South32 Ltd (ASX: S32) intends to distribute a minimum of 40% of underlying earnings as dividends.
ASX 200 coal share Whitehaven Coal Ltd (ASX: WHC) aims to pay 20% to 50% NPAT for distributions, dividends, and share buybacks combined.
Is a high payout ratio always a good thing?
Yes, with two caveats.
Firstly, a company with a high ratio may not have much more room for dividend growth in the future.
Secondly, a high payout ratio loses its significance when profits slump.
Let's look at fund manager Magellan Financial Group Ltd (ASX: MFG).
This well-known ASX 200 financial share has an attractive dividend policy targeting 90% to 95% of the underlying NPAT from the funds management business.
Sounds great.
The only problem is that the FUM business has shrunk substantially in recent years.
In its FY23 full-year report, Magellan revealed its average funds under management is now $48.8 billion, down 48% from FY22. As a result, its management and services fees revenue decreased by 44%.
So, Magellan shares investors will receive 90% to 95% of a much smaller earnings pie for a while.
For this reason, it's instructive for income investors to research beyond an ASX 200 share's payout ratio.
Check out the trailing dividend yield (that's the last two biannual dividend payments combined divided by today's share price), the yield history, and the history of dividends paid per share.
To get started, read about the ASX shares that delivered the best dividend upgrades this earnings season.
Also, check out these ASX 200 shares that have raised their dividend payouts every year for 10+ years.
If you put all this information together, you'll get a comprehensive understanding of which ASX 200 shares are the best dividend payers overall.
