With the interest rates on offer with term deposits struggling to keep up with inflation, I think income investors ought to look to the share market for a passive income.
After all, the Australian share market has an average dividend yield of ~4%. This is vastly superior to anything you'll get from a term deposit right now.
But which shares should you buy? Here are three options to consider:
Macquarie Group Ltd (ASX: MQG)
If you're keen on getting exposure to banking but aren't a fan of the big four, then Macquarie could be a great alternative. I continue to believe it is one of the highest quality companies in the country and a great long term option for investors. This is because of the quality and diversity of its operations and its talented management team. Overall, I believe these leave it well-positioned to deliver solid earnings and dividend growth over the next decade. At present Macquarie's shares offer a partially franked trailing dividend yield of approximately 4.4%.
Sydney Airport Holdings Pty Ltd (ASX: SYD)
Another option to consider is Sydney Airport. This airport operator welcomed 21.6 million passengers through its gates during the first half of FY 2019. Although this was a slight decline on the same period a year earlier, it was still able to achieve a 3.4% increase in revenue. So with domestic passenger numbers improving since the election and international tourism remaining strong, I believe it is well-placed for growth in the coming years. This year Sydney Airport intends to pay a 39 cents per share dividend, which equates to a 4.25% dividend yield.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
A final dividend option to consider as an alternative to term deposits is the Vanguard Australian Shares High Yield ETF. Instead of investing in a single dividend share, this ETF gives investors exposure to a large and diverse group of shares that offer above-average dividend yields. Amongst the 60 shares included in the ETF are the likes of mining giant BHP Group Ltd (ASX: BHP) and telco company Telstra Corporation Ltd (ASX: TLS). Its units currently provide investors with a 5.3% dividend yield.
