S&P/ASX 200 Index (ASX: XJO) stocks can be great candidates for investors looking for significant dividends. Many are capable of making solid profits and funding payouts, and most of them are not valued at an ultra-high price/earnings (P/E) ratio.
Two main factors decide if the dividend yield is large – the dividend payout ratio and the earnings multiple. If the payout ratio is low and/or the P/E ratio is high, then you'll probably see an ASX 200 stock with a low dividend yield.
At their current valuations, I'll point out the two ASX blue-chip shares below for their dividend income.
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Woodside Energy Group Ltd (ASX: WDS)
Woodside is one of the largest oil and gas ASX 200 stocks in the Asia Pacific region. Its market capitalisation is close to $47 billion — despite a 35% decline in the Woodside share price since mid-September 2023, as the chart below shows.
This hefty decline is largely understandable – energy prices have fallen over this time.
Woodside is a commodity business; its production costs are largely stable year to year. If the commodity price rises, the additional revenue is a large boost to net profit, too. However, a decline in commodity prices cuts into revenue, and this significantly slices into net profit.
According to Commsec, the energy stock's earnings per share (EPS) could decline 13% in FY25. Using the forecast on Commsec, the Woodside share price is currently valued at just 10.3x FY25's estimated earnings.
This low P/E ratio could unlock a very pleasing yield with Woodside shares. Commsec projects the ASX 200 dividend stock to pay a grossed-up dividend yield of 11.3% in FY25, including franking credits.
Energy prices are unpredictable, but the ASX 200 share can grow its production in the coming years due to the multiple projects it's working on.
Telstra Group Ltd (ASX: TLS)
Australia's biggest ASX telco share is an ASX 200 dividend stock whose appeal increases as its dividend grows. Although there were no dividend increases between 2017 and 2021, the telecommunications company has increased its payout each year since 2022.
Telstra is benefiting from increasing subscriber numbers and rising mobile prices, both of which help boost the company's operating profit and bottom line.
Profit is what pays for the dividends, so it's good to see profit rising. In its FY24 earnings result, Telstra reported that its underlying net profit after tax (NPAT) for shareholders rose 5.8% to $2.1 billion, and the dividend per share grew by 5.9% to 18 cents per share.
With the world becoming increasingly technological and connected, I think Telstra has a very promising future with 5G and the future 6G.
The broker UBS estimates that owners of Telstra shares could receive an annual dividend per share of 19 cents in FY25. That would be a 5.5% increase year over year. The projected payout translates into a grossed-up dividend yield of 6.7%, including franking credits.
