The Reserve Bank's decision to cut the official interest rate to a record low 2% this week means the paltry returns on term deposits are a real problem for responsible savers. In fact many Australians now face the real chance of a decline in their net worth unless they act in the search of higher returns.
A sensible equity investment strategy is one option so long as investors block out the short-term noise to focus on long-term returns. For equity investors it pays to look to the long term as that's the surest road to positive returns. Here are four companies to consider; each is built to last, with yields to thrash the current cash rate.
Sydney Airport Limited (ASX: SYD)
A core piece of national infrastructure that's unlikely to ever see a prolonged downturn in capacity demand, Sydney Airport has several tailwinds including the long-term growth of international passenger numbers, especially from nearby Asia. For now it's also an effective monopoly, which gives it advantages in setting prices for its fee-earning aeronautical and non-aeronautical services.
The airport and air travel generally are also beneficiaries of cost-saving technologies developed over time, with biometric passports, new flight routes and cheaper airfares all ongoing trends. The stock yields 4.4% and investors can expect rising payouts into the future.
Magellan Financial Group Ltd (ASX: MFG)
The fund manager famed for its long-term approach to the investing has delivered impressive growth and fast-rising distributions to match. As a modern fund manager it has low capital requirements and is able to payout around 75% of profit in dividends. The business posted a recent half-year net profit of $77.4 million with just 80 staff members running the entire operation.
From a well-managed base, Magellan has real operating leverage and the outlook for revenue growth appears solid given the growth in retail and institutional FUM flows. This is a business arguably still in start-up mode and could be expected to yield around a fully-franked 4% this financial year.
Telstra Corporation Ltd (ASX: TLS)
The telco's recent success is partly due to the fact that most consumers select a mobile provider according to their perception of network quality. Telstra's competitive advantage is its network's superior speed and reliability, with 6.7 million 4G devices dialed in and continued growth in its subscriber base.
However, the next big money-making opportunity will probably come via the 'Internet of Things'. This is a phrase invented to explain the coming connection of everyday electronic devices to the internet via the acceleration in cloud computing. Telstra has capacity to meet this next-generation opportunity and may be a moderate growth play into the future, although the primary attraction remains the 4.8% fully franked yield.
ASX Ltd (ASX: ASX)
The local bourse is another business that should interest long-term investors thanks to its market-leading position and defensive earnings streams. Among the top-10 financial exchanges in the world, the group has entrenched regulatory and competitive advantages, with a capital-light business model unlikely to ever face terminal decline.
The exchange just posted low-single digit revenue and earnings growth for the nine-month period ending March 2015 and is a beneficiary of Australia's compulsory superannuation system. It currently offers a fully franked 4.2% yield.
Foolish takeaway
Once the tax benefits of franking credits are accounted for the case against leaving too much personal wealth in low-risk cash equivalents becomes even more compelling.
Any of the above stocks should offer investors a decent and growing income stream, with every opportunity for market-beating returns provided they maintain a long-term approach to their investing decisions.
