Right now in Australia, interest rates have never, in history, been as low as they are today at just 0.25%. The Reserve Bank of Australia (RBA) has cut rates this low as a result of the severe economic recession the country (and the world) is currently going through as a result of the coronavirus pandemic. Although some of us are benefitting from these cuts by paying rock-bottom interest rates on the mortgage, savers and retirees are concurrently suffering. That’s because a cash rate of 0.25% means it’s very hard for banks to offer any decent, inflation-beating interest rates on savings accounts and term deposits. These days, it’s hard to get an interest rate above 1% on a savings account.
It’s a diabolical problem. But that’s why I think a great possible solution is investing in ASX dividend shares. Dividend-paying shares can help your portfolio produce a cash yield vastly superior to ‘safer’ investments like cash and bonds. So here are 2 ASX dividend shares I believe should be considered over term deposits for income today.
2 ASX dividend shares for income
Coles Group Ltd (ASX: COL)
Coles is a name I’m sure we’d all be fairly familiar with. However, I have admired what this company has pulled out of its hat in 2020 for its shareholders. Coles has been able to actually grow its dividend in 2020, partly thanks to the record sales it has seen in light of the pandemic (which Coles reaffirmed this morning). Since Coles sells groceries and other household essentials, I think the stability and defensiveness it can bring to a dividend portfolio is of great value.
On current prices, Coles is now offering a trailing dividend yield of 2.24%, which grosses-up to 4.63% with Coles’ full franking. Not bad for a 2020 blue chip share, in my view.
Telstra Corporation Ltd (ASX: TLS)
I believe Telstra is another top ASX dividend share to consider today. This company — the ASX’s largest telco — has been having a rough time of late, with the Telstra share price currently (at the time of writing) near an all-time low at $2.72. Investors have been fleeing Telstra, worried about its post-nbn growth prospects and whether declining earnings will lead to a dividend cut.
Even so, I think Telstra is a top income share today. The company has paid 16 cents per share in dividends in 2020, and has recently all-but-confirmed it will do so again in 2021. If that does come to pass, it means Telstra is offering a forward dividend yield of 5.88% today, or 8.4% grossed-up with Telstra’s full franking.
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Returns As of 6th October 2020
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.