This week's ABS data that showed consumer prices fell in the first quarter of 2016 has led to many banks and analysts predicting the Reserve Bank will move to cut interest rates when it meets next Tuesday May 3.
The RBA's main remit in setting the cash rate is to meet an agreed medium term inflation target and the shock deflationary result may result in the bank adjusting monetary policy as soon as next week.
If the RBA does cut cash rates anyone leaving their cash in savings accounts or term deposits with the banks like Commonwealth Bank of Australia (ASX: CBA) is likely to face another haircut on some already miserly returns.
On the flip side some of the ASX's best dividend shares are likely to see more buyer interest. Although, it's useless buying a share on a 5% dividend yield if the value of your capital falls by a quarter over the next two years, so investors need to choose carefully.
Below I have four shares that might offer the right mix of income and capital returns in the years ahead.
SKYCITY Entertainment Group Limited-Ord (ASX: SKC) is the operator of the SkyCity casino and leisure complex in Auckland New Zealand, with other casinos in Queenstown, Adelaide and Darwin. According to Commsec the group offers a dividend of 4.4% and trades on 17x earnings. Its long-term outlook is leveraged to the growth in tourism from Asia and I expect it will deliver solid performance.
Iress Ltd (ASX: IRE) is the financial technology business with extensive operations in Australia, the UK, South Africa and Canada. Its data streaming and trading platforms are used by large financial services business, and its products provide a steady stream of cash flows the company is able to pay out in high dividends. It currently yields 3.8% with an attractive business model and decent outlook.
Altium Limited (ASX: ALU) is a technology business involved in the internet of things – an area of technology that is commonly described as the next big thing after cloud computing. Altium makes the printed circuit boards that are used in everyday electronic devices to connect to the internet and its products are selling strongly around the world. According to Commsec it offers a 3.7% yield and trades on 16x earnings.
Magellan Financial Group Ltd (ASX: MFG) is a fast-growing international equities fund manager that is founder led and trading on an attractive valuation. The group's startup nature and ability to retain a tight control over recruitment is its most attractive quality, with a low-cost-to-income ratio and plenty of opportunity to keep growing globally. Magellan delivered a dividend of 51.3 cents per share for the six months ending December 31 2015, and if you assume it can match that in the second half it yields around 4.6% when selling for $21.70.
