Insights

2 ASX 200 shares to buy for income

The 2 S&P/ASX 200 Index (ASX:XJO) shares could be worth buying for income, including Premier Investments Limited (ASX:PMV).
The post 2 ASX 200 shares to buy for income appeared first on The Motley Fool Australia. –

Income

Some S&P/ASX 200 Index (ASX: XJO) shares could make good picks for income in the form of dividends.

An attractive combination for investors might be businesses that are both growing profit, increasing the dividend and start with a solid dividend yield.

These two businesses have a track record of paying dividends to shareholders:

Magellan Financial Group Ltd (ASX: MFG)

Magellan is a funds management business run by billionaire Hamish Douglass. In the latest monthly funds under management (FUM) update, it said that it had $100.6 billion of FUM.

Broker Morgans has a positive long-term outlook for the company because of its expected launch of new products. Morgans has a share price target of just over $58 for Magellan.

The Magellan FY21 half-year result was marginally better than what Morgans was expecting. In that result, Magellan said that its average FUM increased by 9% to $100.9 billion, which drove management and service fees higher by 8% to $311.4 million.

The increased management fee revenue from the ASX 200 share sent profit before tax and performance fees of the funds management business up 8% to $256.2 million.

Adjusted net profit after tax (NPAT) fell 2% to $213.1 million whilst earnings per share (EPS) increased by 2% to 110.6 cents.

For income focused investors, Magellan grew its interim dividend by 5% to 97.1 cents per share.

Looking ahead to growth initiatives, Magellan recently launched its core series of ETFs which look to give investors to global investments at a cheaper cost than its main active strategies.

It has also been making external investments through its principal investment division. For those investments, Magellan is looking for high quality companies with meaningful scale in their sector, with high quality management teams, that help to the intellectual capital of the Magellan funds management business and could provide attractive financial returns.

The three main investments it has made includes Barrenjoey, FinClear and Guzman y Gomez. Barrenjoey has been busy building its investment banking teams.

Magellan is also trying to obtain necessary regulator approval for its proposed retirement income product.

Broker Morgans thinks Magellan will pay a dividend of $2.06 per share for FY21, equating to a partially franked dividend yield of 4.5%.

Premier Investments Limited (ASX: PMV)

Premier Investments is a high-performing ASX retail share that runs a number of different retail brands including Smiggle, Portmans, Just Jeans, Jay Jays, Peter Alexander and Dotti.

COVID-19 has been disruptive for many of the company’s physical retail store chains. However, the online sales have more than made up for the loss of revenue from physical stores.

In a trading update, for the first 24 weeks of the first half of FY21 the ASX 200 share said that online sales had grown by 60% year on year to $146.2 million. These online sales contributed 20.4% of total group sales. Total global sales were only up 5% compared to the prior corresponding period.

The online sales come with much higher profit margins than physical store sales, which is shown with the earnings before interest and tax (EBIT) margin.

Premier is expecting Premier Retail EBIT for the first half of FY21 to be in the range of $221 million to $233 million – this would represent an increase of 75% to 85%.

The ASX 200 company said that it is seeing “outstanding” sales and gross profit margin growth from Peter Alexander, Just Jeans and Jay Jays in both Australia and New Zealand.

Using the last twelve months of dividends, Premier Investments has a grossed-up dividend yield of 4.9% for income investors.

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Returns As of 15th February 2021

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Motley Fool contributor Tristan Harrison owns shares of Magellan Financial Group. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 ASX 200 shares to buy for income appeared first on The Motley Fool Australia.

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