S&P/ASX 200 Index (ASX: XJO) shares can be strong dividend picks because they can pay appealing passive income while also investing in their operations.
The strong rise in share prices of names like Commonwealth Bank of Australia (ASX: CBA) and Macquarie Group Ltd (ASX: MQG) has pushed down their dividend yields. That's why I wouldn't say they're good calls for their dividends right now.
But, companies with a lower price/earnings (P/E) ratio can offer higher dividend yields. Ideally, I'd want to invest in businesses that can grow profits and their dividends in the coming years.
I think the two ASX 200 shares below are appealing options for dividends.
Metcash Ltd (ASX: MTS)
Metcash supplies independent retailers in Australia through its food and liquor divisions. IGA supermarkets are key customers of Metcash.
The ASX 200 share also has a growing hardware segment, which includes Mitre 10, Home Timber & Hardware, Total Tools, Alpine Truss and Bianco Construction Supplies.
Metcash's hardware segment is struggling with a softening of trade activity as construction activity slows across the country. But, the company suggests it is "well positioned" to capitalise on an increase in activity levels.
Over the last 12 months, Metcash's annual dividends have totalled 19.5 cents per share. That amounts to a grossed-up dividend yield of 7.8%.
While conditions aren't booming right now, I think the ASX 200 share is well-placed to benefit once construction activity improves.
Broker UBS suggests the company's annual dividend per share could increase to 21 cents per share in FY28 and 22 cents per share in FY29. At the current Metcash share price, those forecasts translate into projected grossed-up dividend yields of 8.4% and 8.8%, respectively.
The valuation translates into around 12x FY28's estimated earnings.
Collins Foods Ltd (ASX: CKF)
Collins Foods is a large franchisee operator of KFCs in Australia and Europe. It also operates a small but growing network of Taco Bells in Australia.
The company's strategy involves opening or acquiring new locations where it makes sense. For example, it expects to open nine new Australian KFC restaurants in FY25, ahead of its development agreement to open seven new locations per year.
The ASX 200 share is seeing slower growth at the moment as inflation hurts profitability. However, Collins Foods expects profit margin recovery as trading conditions improve.
Impressively, the business has grown its annual dividend per share every year since 2014. The last two dividend payments totalled 28 cents per share.
Broker UBS suggests that the business could pay an annual dividend per share of 36 cents in FY26 and 43 cents per share in FY27. That translates into forward grossed-up dividend yields of 6.2% and 7.4%, respectively.
