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Stuck on 2.5% interest? These dividends pay twice as much!

Interest rates appear to have settled at 2.5% but many are predicting the Reserve Bank of Australia will lower them before they go higher. That means if you’re stuck in a term deposit but want to make a decent return, now could be the time to start buying shares.

Despite the belief that the share market is “pretty much gambling,” it’s not. Many people have negative experiences with stock market investing because either their adviser had given them poor advice, or they simply haven’t been in the market for long enough.

Australians believe property is a bulletproof investment but what’s interesting is that despite the great run property has had in the past 20 years, shares have still outperformed. Even since 2000, the S&P/ASX 200 (ASX: XJO) (^AXJO) is up around 70%!

What’s more, the return from some dividend stocks trumps the yield from leases, rentals and term deposits. Robert Allen, an American businessman once said, “How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” With that in mind, here are three dividend stocks you can buy today while interest rates stay low.

Telstra’s (ASX: TLS) dividend has evaded many investors’ pockets despite paying one of the most sort after profit distributions available – a fully franked return. Meaning that, their dividend includes a ‘franking’ or tax credit. Currently it yields 5.5% plus franking credits.

Companies that are likely to grow modestly aren’t the only ones to pay a decent dividend. Faster growing, smaller stocks also pay handsome returns to shareholders. Myer (ASX: MYR) is one stock that is likely to experience top line growth in the next 12 months as a result of increasing confidence and low interest rates. Currently it pays a huge 6.7% dividend plus franking credits.

If you don’t feel 100% confident picking your own investments however, IOOF Holdings (ASX: IFL) will help you out. With a 4.8% fully franked dividend, it appears well priced but will continue to perform if interest rates remain low and more money seeks out investment opportunities outside of bank accounts and term deposits.

Foolish takeaway

When investing, it’s important to consider your tolerance to risk, your time-frame and diversification strategy. In the short term your portfolio will rise and fall as the market ebbs and flows from one turning point to another. However, the long term is where savvy investors focus their attention.

Warren Buffett, considered to be the world’s best investor, says, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.” Successfully investing is about time in the market, not timing the market.

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See all posts by Owen Raskiewicz
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