Metcash Ltd (ASX: MTS) is an S&P/ASX 200 Index (ASX: XJO) stock that is building a history of paying sustainable income and a high dividend yield.
The company has a defensive earnings profile thanks to its different divisions.
Its food division supplies a large number of independent supermarkets, including IGAs around the country.
The Metcash liquor segment supplies various independent retailers, including Thirsty Camel, Big Bargain Bottleshop, Duncans, Cellarbrations, The Bottle-O, IGA Liquor and Porters Liquor.
I think both food and liquor demand can hold up well, even when there's an economic downturn.
Metcash also has a hardware division, which is a major profit generator for the business. It owns the brands Mitre 10, Total Tools and Home Timber & Hardware.
This ASX 200 share could help investors generate $200 per month of sustainable dividend income, or $2,400 annually.
Strong dividends
Metcash has committed to a dividend payout ratio of 70% of underlying net profit after tax (NPAT). When combined with the relatively low price/earnings (P/E) ratio, it translates into a solid dividend yield.
In FY24, the ASX 200 share is projected to pay an annual dividend per share of 10.5 cents and repeat the payout in FY25, according to Commsec.
That means the projected grossed-up dividend yield for the next two financial years is 8.3%, or 5.8% excluding franking credits.
$200 per month of sustainable income
There are few share investments that pay dividends every month — Metcash usually pays a dividend every six months to shareholders.
If we think of the monthly target of sustainable income as an annual target instead, $200 per month in dividends amounts to $2,400 annually.
How many Metcash shares would we need to receive $2,400 of annual cash dividends (excluding franking credits) for sustainable income?
Investors would need to buy 11,708 Metcash shares for $2,400 of annual cash dividends, an investment right now of a little more than $40,000.
Foolish takeaway
I think this ASX 200 share is an excellent option for sustainable income for the foreseeable future.
All three of its divisions can benefit from population growth in Australia, and I'm excited to see the potential of the company's hardware division in the next uptick in the economy.
