If you're a saver, I've got bad news: interest rates are low — and likely to stay that way.
That means lower returns for retirees and net savers. At just 2% per year, official interest rates are a long way off their historical average – and it's eating away at retirement nest eggs.
Indeed, if we include inflation (currently 1.5%) in our calculations, investors receiving 2.25% from a big bank term deposit are earning next to nothing. Chuck in tax (paid on the 2.25%) and anyone paying 35% tax or more would be losing money, from a purchasing power perspective at least.
However, there is one saving grace. The sharemarket can offer income in excess of official and term deposit interest rates. Yes, shares are riskier than term deposits, but if you plan to invest for the long-term, I think it is – hands down – the best place to park your additional funds.
Here are three well-known Australian companies offering dividend yields higher than the official interest rate and inflation combined.
- Telstra Corporation Ltd (ASX: TLS) is a name synonymous with Australia's home phone, broadband and mobile networks. It's facing growing competition from rivals, but it is investing heavily in new growth areas to provide solid long-term growth prospects. Telstra's shares are offering a dividend yield of 5.8% fully franked.
- Flight Centre Travel Group Ltd (ASX: FLT) is another dominant Australian business growing internationally, with offices in the UK, USA and further abroad. The bricks-and-mortar travel agent has a huge cash balance and savvy management at its helm. Analysts are forecasting a fully franked dividend yield of 4% in the year ahead.
- Crown Resorts Ltd (ASX: CWN) is Australia's largest casino operator. Like the two companies mentioned above, Crown is well run and embarking on an international expansion. Concerns stemming from its presence in Macau saw the market recently sell down Crown's share price to a more compelling level. At today's share price, Crown is forecast to pay a dividend equivalent to 3% fully franked. That's a juicy 4.7% when we include the benefits of its tax-effective franking credits.
