The Reserve Bank of Australia's (RBA) decision to hold the official cash rate at the historic low level of 2.5% is good news for many groups including borrowers, home buyers and the business sector which generally benefit from a low interest rate environment.
Low interest rates however are not great for savers who prefer to keep their money in the bank and earn interest on their deposits. If a saver is risk-averse then he or she may have little alternative but to accept the low rates on offer, however for those prepared to invest in the stock market, higher yields are available.
Breaking the stock market down into the sectors of Australian Real Estate Investment Trusts (AREITS), infrastructure, utilities and general equities not only allows an investor to think about diversification but can also be helpful for considering the different levels of risk often associated with the sectors.
Compared with pre-GFC times, a number of AREITS now have much more conservative levels of debt. Two that could be worth a closer look are BWP Trust (ASX: BWP) and Shopping Centres Australasia Property Group (ASX: SCP) both are well tenanted, reasonably geared and on forecast dividend yields above 5%.
Within the infrastructure sector, toll road operator Transurban (ASX: TCL) and Sydney Airport (ASX: SYD) stand out given the quality of their assets. The stocks are trading on forecast dividend yields of 4.9% and 5.6% respectively.
Many companies within the utilites sector still have very high debt levels however APA Group (ASX: APA) – an owner of pipeline assets – might be worth a closer look too. While gearing is high, APA can support a higher level of debt and its forecast dividend yield of 6% should be maintainable.
For many investors it is still hard to go past the big four banks and Telstra (ASX: TLS) when it comes to seeking income. Given the strength of the recent bank results and the circa 5% yields on offer by the major banks and Telstra, within the general equities category many investors will happily stick with these blue chips.
Foolish takeaway
The stock market isn't a place for everyone and indeed the risks are higher, but so often are the rewards. Careful selection and purchase of a portfolio of high quality stocks for the long-term has in many instances beaten the returns that a bank deposit account provides.
