Ultrasonic guided wave is an effective tool for structural health monitoring of structures for detecting defects. In practice, guided wave signals are dispersive and contain multiple modes and noise. In the presence of overlapped wave-packets/modes and noise together with dispersion, extracting meaningful information from these signals is a challenging task. Handling such challenge requires an advanced signal processing tool. The aim of this study is to develop an effective and robust signal processing tool to deal with the complexity of guided wave signals for non-destructive testing (NDT) purpose. To achieve this goal, Sparse Representation with Dispersion Based Matching Pursuit (SDMP) is proposed. Addressing the three abovementioned facts that complicate signal interpretation, SDMP separates overlapped modes and demonstrates good performance against noise with maximum sparsity. With the dispersion taken into account, an overc-omplete and redundant dictionary of basic atoms based on a narrowband excitation signal is designed. As Finite Element Method (FEM) was used to predict the form of wave packets propagating along structures, these atoms have the maximum resemblance with real guided wave signals. SDMP operates in two stages. In the first stage, similar to Matching Pursuit (MP), the approximation improves by adding, a single atom to the solution set at each iteration. However, atom selection criterion of SDMP utilizes the time localization of guided wave reflections that makes a portion of overlapped wave-packets to be composed mainly of a single echo. In the second stage of the algorithm, the selected atoms that have frequency inconsistency with the excitation signal are discarded. This increases the sparsity of the final representation. Meanwhile, leading to accurate approximation, as discarded atoms are not representing guided wave reflections, it simplifies extracting physical meanings for defect detection purpose. To verify the effectiveness of SDMP for damage detection results from numerical simulations and experiments on steel pipes are presented.