Australia's official cash rate could soon fall even lower.
Currently stuck at a record low of just 2.5%, it's growing increasingly likely that the Reserve Bank's hand could be forced, dropping interest rates even further in an attempt to spur the economy.
As it stands, the nation's unemployment rate is climbing steadily and, according to some analysts, could soon breach the 7% level. Then, perched just above US85 cents, the Australian dollar remains stubbornly high, impacting Australia's exporters which are struggling to compete with international sellers as a result. This is particularly the case for our miners who are also battling to cope with tumbling commodity prices, including iron ore and coal.
While the RBA's easing cycle did help to curb these trends, it seems that even more action may be necessary in the near future. According to Fairfax media, Credit Suisse is of the view that the RBA should cut rates to below 2%. Bruce Jackson, General Manager of The Motley Fool Australia, went one step further and suggested the cash rate could drop to just 1.5%.
Although that would be good for Australian consumers who would save even more on interest repayments, it's not so great for retirees or those investors with their cash stuck in term deposits. In fact, when tax obligations and inflation are both taken into account, investors with their money in term deposits are actually losing money!
Here's how you can make a nice profit instead…
Regardless of whether interest rates do end up falling further, high-yield dividend stocks are the best way to profit from this already low-rate environment.
To be clear, that doesn't mean you should go out and buy just any company which offers an attractive yield. For instance, Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS) have both been extremely popular amongst investors in recent years, but their shares are by no means trading at attractive prices anymore.
Instead, investors should be looking at companies which are currently out of favour with the market, or those which could also offer fantastic growth potential to deliver strong capital gains too.
Right now, that includes companies such as Coca-Cola Amatil Ltd (ASX: CCL) and JB Hi-Fi Limited (ASX: JBH), which have both endured a tough 12 months. Coca-Cola Amatil offers a 4.4% yield, franked to 75%, while discount electronics retailer JB Hi-Fi yields 5.6%, fully franked.
Investors wanting to boost their dividend income could also consider buying a stake in Scentre Group Ltd (ASX: SCG). The shopping centre behemoth has now experienced 15 consecutive months of improvements in retail sales, and that should only improve as consumer confidence recovers. The stock yields roughly 5.7%, albeit unfranked.
However, there is another dividend stock shaping up as an even more attractive buy right now…
