3 dividend stocks that smash term deposits

Credit: Olivia Wilson

The Reserve Bank of Australia has pushed Australian interest rates further into uncharted territory, with yesterday’s rate cut to a new record low of just 1.5%. With term deposit rates likely to head lower over the next few months, investors are looking to lock in strong-yielding businesses for the years ahead.

Here are three high-yielding businesses that would suit most investors:

Telstra Corporation Ltd (ASX: TLS) – it’s hard to go past Telstra for its dividend yield. While I think the stock is trading roughly around fair value (and thus does not offer much of a margin of safety), shares are also less volatile than a number of other stocks. With a dominant market position and strong tailwinds for the network sector over the next few years, Telstra’s share of the pie stands to get larger as the pie itself increases.

As I wrote here, Telstra’s 5.4% fully franked dividend appears highly sustainable, and it sure beats a savings account.

Wesfarmers Ltd (ASX: WES) – another highly defensive business like Telstra thanks to its Coles franchise, Wesfarmers isn’t going anywhere in a hurry. While the company does have some exposure to an economic downturn thanks to its department stores, they are only small contributors to the company’s overall performance. Better yet, Coles has been taking market share from Woolworths Limited (ASX: WOW) for years as its primary business goes from strength to strength.

With a 4.7% dividend, defensive businesses and great cash flows, Wesfarmers is a high-yielding company income investors can count on.

G8 Education Ltd (ASX: GEM) – not as defensive as either Telstra or Wesfarmers, and thus suitable for a smaller part of your portfolio, G8 Education’s 6.5% dividend yield earns it a spot on this list. Although childcare is seen as a discretionary expense and vulnerable to weaker economic conditions, families with two working parents are a fact of life and childcare isn’t going anywhere. A consolidator in the childcare industry, G8 is well funded and has hinted at ‘same-store’ growth in is operations, which would give legs to its acquisitions.

Better yet, its 6.4% fully franked dividend appears sustainable – and it’s paid quarterly.

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Motley Fool contributor Sean O'Neill owns shares of G8 Education Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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