Numerous S&P/ASX 200 Index (ASX: XJO) shares pay a dividend to shareholders each year. However, there are only a few ASX 200 dividend stocks I'd want to own in my portfolio.
Passive income can be an appealing factor for some investors, including myself. I like being rewarded with cash flow through business ownership, but I also want to see earnings growth over the long term.
For me, solid earnings growth is the biggest driver of capital growth over time. Higher profits can also fund larger dividend payments, which is important for inflation protection and overall wealth creation.
I believe the two ASX 200 dividend stocks below could be excellent long-term investments.
Wesfarmers Ltd (ASX: WES)
In my opinion, Wesfarmers is one of Australia's leading retailers, with a stable of businesses including Bunnings, Kmart Group, and Officeworks. Those three retailers are category leaders when it comes to national reach, customer value, and delivering returns for shareholders.
Wesfarmers has a stated goal of growing its dividend in line with its performance of growing profits over time. Wesfarmers has been growing its annual dividend each year since FY20. Before FY20, it divested the Coles Group Ltd (ASX: COL) business, so it wasn't entitled to those earnings anymore.
Wesfarmers' two key profit generators both have growth plans, with Kmart working on expanding its Anko products to overseas markets and Bunnings looking at a number of new product categories, such as high-demand car-related products, to grow sales.
If Kmart and Bunnings can continue to make strong returns on new invested capital, then the future is bright for Wesfarmers and future dividend growth.
The Wesfarmers FY24 annual dividend per share was $1.98, which translates into a grossed-up dividend yield of 4%.
Brickworks Limited (ASX: BKW)
Brickworks has one of the most impressive dividend records on the ASX, in my opinion.
It hasn't cut its dividend for almost 50 years, which is an incredibly long dividend record. It has also grown its dividend each year for the past decade, which is one of the better growth streaks on the ASX.
How has a building products business, which is susceptible to cyclical conditions, achieved those dividend records?
Over the ultra-long term, I'd put that record down to its substantial shareholding of investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Its portfolio is diversified and largely uncorrelated across sectors like telecommunications, resources, and property, which has provided Brickworks with an attractive source of dividends and stability at times of wider economic uncertainty.
Soul Patts has grown its dividend every year since 2000, which is helping fund Brickworks' dividend.
Brickworks also owns a growing portfolio of industrial property through its 50% ownership of an industrial property trust, which is steadily constructing more (large, technologically advanced) buildings. The expanding portfolio is unlocking more rental profits and helping fund dividends for Brickworks shareholders.
The last two dividends declared by Brickworks amount to 67 cents per share, which comes to a grossed-up dividend yield of 3.3%.
