Instead of putting your money into term deposits which provide only paltry interest rates, I would suggest you look at some of the quality dividend shares the ASX has to offer.
Three which I think would be great alternatives to term deposits are listed below. Here’s why I like them:
Commonwealth Bank of Australia (ASX: CBA)
I think this banking giant is a top dividend share to consider buying. Although Commonwealth Bank will almost certainly cut its dividend materially in FY 2021, I believe it will still offer an above-average yield. At present I believe a fully franked dividend of $3.70 per share is possible next year, which equates to an attractive fully franked 5.35% yield. This estimate could prove to be conservative if the economic damage from the pandemic isn’t as bad as first feared.
Rio Tinto Limited (ASX: RIO)
If you’re not averse to buying mining shares, then Rio Tinto could be a top option for income investors. This is because the high prices that iron ore is commanding at present, thanks to strong demand and supply constraints, means the mining giant is well-placed to deliver strong profits in FY 2020 and FY 2021. And given the strength of its balance sheet, I suspect the company will return the majority of its free cash flow to investors through dividends. In light of this, I estimate that its shares offer a forward fully franked dividend yield of at least 5%.
Transurban Group (ASX: TCL)
Another dividend share to look at buying is Transurban. I think the toll road operator could be a great option for income investors due to the quality of its portfolio and its positive long term outlook. In a recent update, Transurban revealed that its traffic volumes are improving greatly. I believe this bodes well for FY 2021 and could mean a distribution close to normal levels again. At present I estimate a dividend of 49 cents per unit next year, which equates to a 3.3% distribution yield.
And here are more shares I would buy ahead of term deposits…
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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