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Getting just 2.5% on your term deposit? Try these big dividend stocks for size

With interest rates stuck at just 2.5% (with some tipping them to go lower) and inflation at 3%, there’s a very real risk individuals with their money tied up in term deposits and savings accounts are losing purchasing power.

Paying tax on all of your interest doesn’t help either…

Step in, the Australian share market.

Whilst interest rates on term deposits are falling, shares in some of our most prominent companies are paying bigger, sometimes tax effective, dividends.

However, dividend payouts are not guaranteed and management can pull the payment for a number of reasons. So analysing a company’s underlying fundamentals is essential…

Four companies known for their big dividend yields are National Australia Bank Ltd (ASX: NAB), M2 Group Ltd (ASX: MTU), Scentre Group Ltd (ASX: SCG) and BWP Trust (ASX: BWP).

NAB is the biggest dividend payer of the major banks. Just last week the group declared a final fully franked dividend of $0.99 per share, taking the full-year payout to $1.98 and placing its stock on a 5.7% fully franked dividend yield.

However, NAB is accident prone and its shares don’t come cheap, so investors would be wise to steer clear of it, for now.

M2 Group is a telecommunications company whose brands include Dodo, Eftel and Primus. Its track record of increasing dividend payments is superb and shares currently yield 3.6% with full franking.

The newly formed Scentre Group and BWP Trust are property owners whose occupants are high-quality Australian businesses such as Westfield and Bunnings Warehouse, respectively.

Neither of the stocks come with full franking credits but trade on dividend yields of 5.6% and 5.8%, respectively. The trick to purchasing these types of stocks (i.e. listed property stocks) is to buy them below book value. Today, neither of them present as compelling investments.

Our #1 dividend stock idea – Yours FREE!

Australian shares are an excellent alternative to low interest rates on term deposits. But its essential investors look at more than just past dividend yields as a guide when picking stocks. Indeed, if you can find a reasonably priced stock, with growing profits and dividends, you’ll likely be well rewarded…

And our top analyst, Scott Phillips, recently identified one cheap but growing small-cap ASX stock with a 6% grossed-up dividend yield which I think is a STANDOUT buy today. If you're interested in knowing its name, just click on the link below, enter your email address and we'll send you the FREE report on his top dividend stock idea for 2014 - 2015!

The Motley Fool's Top Dividend Stock Idea for 2014 - 2015

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.  

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