Which are the top 5 ASX 200 dividend shares?

Summary

  • Dividend investing is an approach used by dividend lovers, which primarily focuses on dividend income over capital appreciation.
  • AGL Energy’s dividend policy is to target a payout ratio of approximately 75% of annual underlying profit after tax.
  • The directors of HVN have recommend a fully franked interim dividend of 20.0 cents per share in 1HFY21.

Dividend investing is an approach to invest in stocks, primarily to receive a consistent income in the form of dividends. Dividends are payments that a company makes to its shareholders from the pool of its net profits.

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Just as a bond holder is entitled to interest payments from the respective company, a shareholder is entitled for dividends. However, dividends are not a mandatory payment and solely depends on the earnings of the company, apart from the management’s dividend policy.

While investing for dividends, the most popular metric to compare dividend payout by different companies is the dividend yield. Dividend yield compares the dividends paid by the company over the period of last one year with the current share price of the company, making it easier to estimate return on investment.

Read More: What type of dividend does Transurban (ASX:TCL) pay? Is it fully franked?

Is higher dividend yield always better?

Companies paying higher dividends with respect to their share price quote at a higher yield and hence preferred by dividend lovers. However, excessively higher yield might not be as good of an option as an investor might think. One-time special dividend due to a surge in earnings influences its dividend yield to notch higher. These fluctuations in earnings are generally seen in cyclical businesses such as a commodity-based business and a sudden surge in profits might not be sustainable.

Also, due to a sharp fall in the company’s share price on the backdrop of any dent to its fundamentals, dividend yield tends to shoot up, without an increase in the actual dividend. To avoid all these higher-yield traps, one of the best ways is to select fundamentally strong companies as their earnings are generally stable and predictable. On that note, let’s have a look at the 5 best dividend-paying stocks from the ASX 200, which includes top 200 companies of Australia.

  1. Fortescue Metals Group Limited (ASX:FMG)

Fortescue Metals Group is an Australia-based iron-ore company and the fourth largest producer of iron ore in the world. The company has delivered a great operating performance, which continued to drive strong results, with shipments of 42.3mt in Q3 FY21, contributing to a record shipping performance for the first nine months of FY21.

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The average revenue for Q3 FY21 stood at US$143/dry metric tonne (dmt), an increase of 17% over the previous quarter with revenue realisation at 86% of the average Platts 62% CFR Index. The FMG share price is trading at AU$23.5, with a dividend yield of 15.2%.

  1. AGL Energy Limited (ASX:AGL)

AGL Energy supplies around 4.5 million energy and telecommunications customer services in Australia. It operates the country’s largest private electricity generation portfolio within the National Electricity Market, comprising coal and gas-fired generation and renewable energy sources.

The company reported a statutory loss after tax of AU$2,287 million in 1H FY21, better than a $2,610 million loss in the prior corresponding period. AGL Energy’s dividend policy is to target a payout ratio of approximately 75% of annual underlying profit after tax. The AGL share price is trading at AU$8.1, giving it a double-digit dividend yield of 10.9%.

  1. Harvey Norman holdings Limited (ASX:HVN)

Harvey Norman is a retail giant in Australia, offering huge range of products such as TVs, laptops, cameras, etc. In its 1H FY21 report, the company posted a record increase in profit before tax to AU$643.91 million, up from AU$301.15 million in the previous corresponding period.

The directors recommend a fully franked interim dividend of 20.0 cents per share in 1H FY21. With the current HVN share price being AU$5.43, the dividend yield stands at 10.1%.

  1. Aurizon Holdings Limited (ASX:AZJ)

Aurizon is an AU$6.84 billion rail freight operator in Australia, the largest in the country. The company had delivered a steady performance in the challenging times in 1HFY21, clocking Earnings Before Interest and Tax (EBIT) of AU$454 million, against prior comparable period of AU$456 million.

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During the same period, the management increased interim dividend by 5% to 14.4 cents per share, 70% of which is franked. This underlines the strength and resilience of Aurizon and the work done in recent years to simplify the business. The AZJ share price is quoting at AU$3.74 with dividend yield being 9.8%.

  1. Flight Centre Travel Group Limited (ASX:FLT)

Flight Centre Travel Group is a Brisbane-based company engaged in travel retailing business for both the leisure and corporate travel sections. Due to the COVID-19 situation, the company is expecting 2H FY21 underlying losses to be broadly in line with 1H losses.

However, the COVID-19 challenge is weathering with cost base lowering materially to sustainable levels – down 66%. Also, a significant pent-up demand is also likely to boost the revenue in coming quarters. The FLT share price is trading at AU$14.94, with a dividend yield of 8.7%

Read More: What are the risks of investing in high dividend stocks?

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