A once-in-a-decade chance to get a 10%+ yield from ASX 200 income shares?

I’m always interested in considering share prices when I see a decline. Certain S&P/ASX 200 Index (ASX: XJO) income shares are offering investors a huge dividend yield.

High dividend yields can be a trap, particularly if they mean the dividend will be cut sooner rather than later.

However, some dividend yields may not be illusions but be coming from incredibly undervalued names.

Keep in mind, a dividend yield increases when a share price decreases. For example, if a business has a 7% dividend yield and then the share price drops 10%, the dividend yield reaches 7.7%.

Share prices do sometimes go through large declines when there is some sort of widespread issue, such as the GFC, COVID-19 or the strong inflation period. Dividend yield-focused investors can see higher yields at times like that. But, I wouldn’t call the current period as once-in-a-decade. Rather, the market seems to regularly go through sizeable declines.

I think income investors should always be on the lookout for ASX 200 income shares with large yields.

The business doesn’t necessarily need to have a dividend yield of 10% (or more) for it to be a good ASX dividend share. For example, I’ve highlighted names like Future Generation Australia Ltd (ASX: FGX) and Hearts and Minds Investments Ltd (ASX: HM1) as compelling ideas for dividend income (though they aren’t ASX 200 income shares).

I’ll briefly point out three names that are expected to have extremely high dividend yields in FY26. But, there’s no guarantee those yields will be that strong forever.

IPH Ltd (ASX: IPH)

IPH is a legal business that provides clients with intellectual property (IP) services such as patent filing, trademarks and enforcement. It has a position in a number of markets including Australia, New Zealand, Asia and North America. It claims to be the largest player in the Asia Pacific region.

The FY26 half-year result showed good financial progress by the business. It grew revenue by 6.5% to $363.9 million, increased operating profit (EBITDA) by 6.6% to $107.1 million and the statutory net profit (NPAT) rose by 10.5% to $41.2 million. The business decided to hike its interim dividend by 11.8% to 19 cents.

The forecast on Commsec suggests the ASX 200 income share’s annual dividend could rise to 37.6 cents per share in FY26. That translates into a dividend yield of 11% excluding any franking credits, at the time of writing.

Magellan Financial Group Ltd (ASX: MFG)

Magellan is a funds management business that provides portfolios across Australian shares, international shares and infrastructure equities. It also holds stakes in a few other businesses including investment bank Barrenjoey and fund manager Vinva.

The business recently announced it’s going to merge with Barrenjoey, giving Magellan much more earnings growth potential in the coming years, in my opinion.

According to the forecast on Commsec, it’s predicted to pay a grossed-up dividend yield of 11.1% in FY26, including franking credits at the time of writing.  

Centuria Office REIT (ASX: COF)

This is a real estate investment trust (REIT) that owns office properties across metropolitan Australian locations.

The ASX 200 income share’s weighted average lease expiry (WALE) is around four years, which provides some rental income and visibility, but there are recent developing headwinds of higher interest rates, rising inflation and questions of how AI developments could impact office demand.

Even so, the land that the offices sit on is valuable, and the REIT is working out leasing some floors to data centres, protecting its underlying value.

The business has guided that it’s going to pay a distribution per unit of 10.1 cents in FY26, translating into a distribution yield of 10.1%, at the time of writing.

The post A once-in-a-decade chance to get a 10%+ yield from ASX 200 income shares? appeared first on The Motley Fool Australia.

More reading

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• Endeavour Group earnings: NPAT drops as sales rise; interim dividend declared

Motley Fool contributor Tristan Harrison has positions in Future Generation Australia and Hearts And Minds Investments. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended IPH Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.