S&P/ASX 200 Index (ASX: XJO) dividend shares could be a fertile ground for investors look for income.
Businesses with strong market positions and attractive dividend payout ratios can translate into being good ASX dividend shares.
These two businesses have a focus on cash payouts to shareholders:
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Coles Group Ltd (ASX: COL)
Coles is one of the biggest supermarket businesses in Australia. It generates earnings from Coles Express service stations as well as other businesses like the 900 liquor stores it operates across Liquorland, Vintage Cellars, First Choice Liquor and First Choice Liquor Market.
The COVID-19 period has been a significant period of demand and sales, though lockdowns have now seemingly ended, certainly in the Australian states with the biggest populations. The Coles share price has dropped around 5% since 23 November 2021, boosting the potential dividend yield on offer.
Citi thinks that Coles is currently rated as a buy because the broker feels that it will take longer than expected for supermarket demand to reduce to a more normal level.
The broker is expecting Coles to grow its dividend materially over the next couple of years. The projected FY23 grossed-up income yield from the ASX 200 dividend share is expected to be 5.9%.
Despite the large growth of supermarket sales in FY21, FY22 has (or had) continued to showed growth in the first quarter. In the FY22 first quarter, supermarket sales were up 1.8% to $8.6 billion and up 11.9% over two years.
In the first four weeks of the second quarter, supermarket sales were broadly in-line, whilst COVID-19 related costs were said to be reducing over the last couple of months.
Brickworks Limited (ASX: BKW)
Brickworks is a leading ASX 200 dividend share.
The company says that there are two assets that fund its dividend, which hasn't been cut for over four decades.
The first asset is its large holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. This investment conglomerate owns shares in a number of different ASX shares including Brickworks, TPG Telecom Ltd (ASX: TPG), New Hope Corporation Limited (ASX: NHC), Pengana International Equities Ltd (ASX: PIA), Clover Corporation Limited (ASX: CLV) and Tuas Ltd (ASX: TUA). It also owns unlisted businesses too, providing more diversification.
Brickworks' other asset that funds its dividend is the joint venture industrial property trust.
Those properties are experiencing strong valuation increases as more businesses look for key logistics and distribution properties.
In a recent update, Brickworks said that it is expecting to report record earnings for its property business.
Construction of the huge Amazon facility is due for completion at the end of December 2021, which should lead to a material increase of rental profit and the valuation. The property trust is also building a large-scale warehouse for Coles.
It also announced the purchase of 121 hectares in southwest Sydney, which will be used as a clay resource to support Austral Bricks operations in Sydney, effectively replacing the existing clay resource at Oakdale East. This will allow 75 hectares of land to be released at Oakdale East, which will be sold into the property trust, resulting in a sale profit and extending the development pipeline to meet the unprecedented demand for industrial development.
At the current Brickworks share price, it has a trailing grossed-up dividend yield of 3.5%.
