One of my favourite things about investing in S&P/ASX 200 Index (ASX: XJO) shares is receiving the dividends they pay. Passive income is a great boost to total returns and means our finances can benefit without having to sell shares.
I wouldn't invest in any business just because it pays a dividend, or, in other words, has large dividend yield. I'd only invest in business that I'm expecting to grow their profit in the coming years. Larger profits could mean bigger dividends and share price growth over time.
I'll discuss two large ASX 200 shares that already offer investors impressive dividends and could grow further in the coming years.
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APA Group (ASX: APA)
APA is one of the country's biggest energy infrastructure businesses. It owns a huge national gas pipeline, taking gas from the source to where it's needed – APA transports half of the country's gas usage. It also owns wind farms, solar farms, electricity transmission assets and other gas-related assets.
Impressively, the ASX 200 share has grown its distribution every year since 2004 and I think it can continue growing its payout thanks to a couple of key factors. Firstly, it's still investing in adding pipelines to its network, as well as other energy-related assets and this should help boost its cash flow. It's aiming to deliver incremental expansion of its east coast gas grid to "meet customer demand while delivering strong returns for investors."
Plus, most of the business' revenue is linked to inflation. This has allowed it to achieve notable revenue growth in the last few years.
The business is expecting to grow its FY25 distribution per security by 1.8% to 57 cents, which equates to a distribution yield of 6.9%.
Telstra Group Ltd (ASX: TLS)
Telstra is Australia's largest telecommunications business. It boasts the most subscribers, the widest network coverage, the best spectrum assets, strong profit margins and so on.
The ASX 200 share has built a reputation for paying reliable dividend yield over the years, and I believe the company still has very compelling passive income potential.
Telstra is investing in its 5G network to offer subscribers the best service nationally. Having the most appealing network allows the business to attract a good number of subscribers to its business every year. This allows it to continually invest in its business to ensure it stays ahead of its competitors.
The business is scalable because the telco can spread the fixed costs of the network across more subscribers, boosting the profit margin.
The ASX 200 share currently has a grossed-up dividend yield of 5.8%, including franking credits. According to the projection from UBS, Telstra could pay a grossed-up dividend yield of 8.5% in FY29, including franking credits.
