Why these ASX income stocks could be better than term deposits

Term deposits are looking more attractive than they have for a long time.

With interest rates rising, investors can now earn a respectable return from cash without taking on share market risk. For income investors with a low risk tolerance, I think term deposits can make a lot of sense.

But they are not the only option.

For investors who can handle some risk, ASX income stocks may offer something more powerful: attractive dividends plus the potential for capital growth.

That is important when inflation is high. A term deposit may help preserve purchasing power, but it is unlikely to grow wealth meaningfully after inflation and tax. Quality dividend shares can offer income today and the chance of a higher portfolio value over time.

Three ASX income stocks I would consider are named in this article.

Telstra Group Ltd (ASX: TLS)

Telstra is one of the first ASX income stocks I would look at.

The telecommunications giant provides mobile, broadband, and network services that remain essential for households and businesses.

I like this defensive quality. Even when consumers are under pressure, most people will not cancel their mobile phone or internet connection. That gives Telstra a more resilient earnings base than many cyclical businesses.

The other attraction is its dividend profile.

Telstra has been working through a long period of simplification and network investment, and I think the business now looks better placed to deliver steady income growth for shareholders.

HomeCo Daily Needs REIT (ASX: HDN)

HomeCo Daily Needs REIT is another income option I like.

This property group owns convenience-based assets such as neighbourhood retail, large format retail, and health and services properties.

That mix is attractive to me because many of its tenants are linked to everyday needs rather than luxury spending.

The portfolio includes exposure to supermarkets, pharmacies, healthcare services, pet supplies, and other essential or regular-use categories. This can support rental income even when household budgets are stretched.

There are risks. REITs can be sensitive to interest rates, debt costs, and property valuations. But if rates eventually stabilise and demand for convenience-based retail property remains solid, I think the income and capital growth potential could be strong.

BWP Group (ASX: BWP)

BWP Group is another ASX income stock that could appeal to investors looking beyond term deposits.

It owns a portfolio of large-format retail properties, with a strong connection to Bunnings Warehouse sites.

That gives it exposure to a tenant base and property type that has historically been attractive for income investors.

I like the simplicity of the model. BWP owns properties and collects rent from tenants, with the aim of turning that rental income into distributions for investors.

The link to large-format retail can also provide some inflation protection if leases include rental increases over time.

BWP is also not risk-free. Property values can move, interest rates can affect sentiment, and tenant concentration needs to be considered. But for income investors willing to take on some market risk, I think it remains a quality ASX property income option.

Foolish takeaway

Term deposits are a good choice for investors who want certainty and have little tolerance for share market volatility.

But for those who can accept some ups and downs, ASX income stocks may offer a stronger long-term outcome.

Telstra, HomeCo Daily Needs REIT, and BWP Group all provide income potential from different parts of the market. They also offer something term deposits cannot: the chance for capital growth over time.

The post Why these ASX income stocks could be better than term deposits appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has no position in any of the stocks mentioned. 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 positions in and has recommended Telstra Group. The Motley Fool Australia has recommended HomeCo Daily Needs REIT. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.