At just 2% per year, record-low official rates are hurting the investment returns achieved by many Aussies.
Indeed, term deposits are offering little more than the official Reserve Bank of Australia cash rate, maybe 2.4% over a one-year period. So by the time modest inflation and income tax rates are factored in, our hard-earned cash is barely making anything!
That's why I think dividend shares will still be sought after in 2016. After all, if you can find a quality dividend share to own over the long-term, you may be able to lock in cash dividend payments well in excess of interest rates.
And with the added benefit of franking credits, many Australian investors, including SMSFs, are also eligible for a tax 'credit' when they report their income to the Australian Tax Office.
With that in mind, here are five blue-chip dividend shares you could add to your watch list in 2016.
- Australia and New Zealand Banking Group (ASX: ANZ) – dividend yield: 6.8% fully franked
A 20% fall in ANZ's share price has boosted the bank's dividend yield. Remember dividend yield is calculated by last year's dividend divided by share price. Investors are, therefore, reminded that there is more to picking a good dividend share than yield alone.
- Automotive Group Holdings Ltd (ASX: AHG) – dividend yield: 5.2% fully franked
Australia's largest automotive retailer has grown its dividend payout healthily in recent years, as industry growth and savvy management spurred profits.
- Woodside Petroleum Limited (ASX: WPL) – dividend yield: 7.9% fully franked
Plunging commodity prices are taking their toll on shares of major resources businesses. Indeed, although Woodside's 7.9% fully franked dividend may look very compelling now, analysts are currently forecasting a steep cut to the oil and gas giant's dividend payment in coming years.
- Telstra Corporation Ltd (ASX: TLS) – dividend yield: 5.7% fully franked
Telstra is renowned for its fully franked dividend. As a market leader in mobiles and other non-discretionary consumer goods and services, investors flock to the telco's shares for their perceived safety and dividend reliability.
- Insurance Australia Group Ltd (ASX: IAG) – dividend yield: 5.4% fully franked
IAG, a leading Australian insurance business, can have big swings in profits and dividends due to natural hazards. Nonetheless, based on last year's dividend payment, IAG shares yield a compelling 5.3% fully franked.
Foolish takeaway
There's much more to investing than buying shares based on dividend yield. As noted above, if you realise a capital loss of 10%, what use is a 5% dividend? Therefore, while each of these blue chip shares deserve a spot on your watch list, more research is necessary before committing to an investment.
