As every retiree, income-investor or financially minded person will know, interest rates have been at record lows for just over a decade now. The days of 18% interest rates that many people might remember are a distant memory and it's hard to think of a worse time to invest in bonds, cash or cash-equivalents like term deposits. A term-deposit barely covers inflation these days and, in my opinion, hardly even qualifies as an 'investment'.
With the Reserve Bank of Australia seriously considering lowering rates again next month to a new record low of 1.25% (presumably), it looks like we won't be out of the woods for the foreseeable future.
Here are three ASX dividend shares I would consider owning over a term-deposit. All have high, fully-franked dividend-yields and above-average stability in earnings, so you can be reasonably confident of a robust income stream well into the future.
Westpac Banking Corp (ASX: WBC)
Westpac, as one of the 'Big Four' banks, is a well-known dividend payer. The banks have long been known for fat dividends and on this front, Westpac doesn't disappoint with its 7% yield (before franking). I have chosen Westpac as I believe its yield and payout ratio (80%) is not too high to justify a long-term buy. Westpac is more exposed to the retail banking sector than some of the other banks, but I think that retail banking is a less volatile area than business banking and would provide a better cushion to any tough times ahead. Even if the dividend is not increased or is cut somewhat substantially, the yield is enough to still be a competitive income stock for at least a long period of time regardless. Banking is still a solid and lucrative business in Australia, and I think Westpac shares would be great to hold for income seekers.
Telstra Corporation Ltd. (ASX: TLS)
Long the bane of income and retail investors, Telstra shares have a been a controversial stock over the last few years. The company was hit hard by the restructuring of the Telecom sector that the NBN brought and the Telstra share price hit a record low last year in the wake of its dividend being slashed by almost 50% per share. However, I believe Telstra has found its footing in the post-NBN world and its dividend has likely stabilised at its current rate of 16c per share. I like Telstra's prospects over the next decade as it is the largest Australian company tasked with supplying our insatiable demand for internet data (which I can't see decreasing anytime soon). The company is yielding 4.48% pre-franking on current prices, which I think is a healthy level for entry.
Coles Group Ltd (ASX: COL)
Recently floated supermarket giant Coles is my third pick. I like Coles as it has flagged its first dividend to be around the 5% mark (judging by its promise to payout between 80-90% of its earnings), which would substantially beat its arch-rival Woolworths Group Ltd (ASX: WOW) on yield terms. Coles has a large chunk of market share in the grocery industry, which is a famously stable sector (we all need food and cheap food becomes more attractive in tough times). Whilst future growth may be hard to come by in the face of tough competition, Coles is trialling new technologies such as supply automation to keep margins as tight as possible. This should ensure the safety of its dividend for many years to come.
Foolish Takeaway
These three ASX stocks are dividend-paying machines and have substantial market share in their respective sectors. Australian banks are some of the strongest in the world (as proved during the GFC) and the telco and grocery sectors are areas which are least affected by economic turmoil. Thus, I believe these shares would be great options to beat the Banks' term-deposits and make your money work harder for you.
And if you're after more dividend stock ideas, the experts at Motley Fool Australia have revealed their top dividend stock pick for 2019.
