The two S&P/ASX 200 Index (ASX:XJO) shares in this article could be buys for their dividend potential, including APA Group (ASX:APA).
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There are some S&P/ASX 200 Index (ASX: XJO) shares that have built reputations of being good dividend payers to their shareholders.
During the 2020 calendar year there were plenty of dividend cuts from some of the ASX 200’s biggest businesses like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and BHP Group Ltd (ASX: BHP).
But these two businesses kept the dividend increases coming despite the COVID-19 pandemic impacts.
Brickworks Limited (ASX: BKW)
Brickworks has been listed on the Aussie stock exchange for over 50 years. It started as a major brickmaker, but it’s now the biggest brick businesses in the whole of Australia.
It now also manufactures and sells various other products like paving, masonry, stone, roofing, specialised building systems, precast and cement.
The ASX 200 company is also the market leader in the north east of the US after acquiring three American brickmakers including Glen Gery. The US operations have 10 brick plants and one manufactured stone plant. Those plants are now operating at almost a 80% utilisation rate, up from 50%.
Whilst the building products are experiencing varied performance due to COVID-19, Brickworks doesn’t rely on those divisions to pay for its dividend.
The first of the two pillars for the dividend is its property division.
Brickworks has a property trust which was established in 2006 as a 50/50 joint venture with Goodman Group (ASX: GMG). Brickworks provides land at market value (that’s surplus to operations) for development. Goodman funds the infrastructure works.
After a pre-lease agreement has been signed with a prospective tenant, the facility is then constructed which is funded by debt (with serviced land as security).
At the time of the last update, at the Brickworks AGM, the property trust had total gross assets of $2.1 billion and gearing of 36%. The ASX 200 share said that it’s benefiting from structural tailwinds, driven by industry trends to online shopping.
Once two huge warehouses are completed for Amazon and Coles Group Ltd (ASX: COL), it’s expected that the gross assets of the property trust will rise to more than $3 billion (up $900 million) and the rental profit distributions will grow by at least 25%.
The other thing that funds the Brickworks dividend is the steadily-growing dividends from Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). Brickworks owns just under 40% of Soul Patts, which is an investment conglomerate that has been operating and paying an annual dividend for over a century.
Soul Patts is another ASX 200 dividend share, it has a diverse portfolio of shares of listed businesses like TPG Telecom Ltd (ASX: TPG), Brickworks, Milton Corporation Limited (ASX: MLT), Bki Investment Co Ltd (ASX: BKI), Clover Corporation Limited (ASX: CLV) and New Hope Corporation Limited (ASX: NHC).
The ASX 200 dividend share hasn’t actually reduced its dividend per share for over 40 years. At the current Brickworks share price it has a grossed-up dividend yield of 4.3%.
APA Group (ASX: APA)
This business is one of the largest ASX 200 shares, it’s focused on energy infrastructure.
APA owns a large network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets and delivers half the nation’s natural gas usage.
The energy giant announced recently that it would be building a new pipeline in WA that would connect with its existing pipeline to create one large grid. Once finished, the new pipeline could attract some of the local resource businesses to request a connection for cheap and consistent energy.
APA funds its annual distributions to shareholders from its various assets’ operating cashflow. More completed projects can lead to higher distributions.
The ASX 200 dividend share has increased its distributions to investors consecutively for a decade and a half.
At the current APA share price, it has a distribution yield of 5.2%.
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Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group and COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.