There is no doubt that lower interest rates are having an impact on investors seeking an attractive level of income from their investments.
For example, property prices have been pushed up so high that rental yields in some areas of Australia’s capital cities are at record lows and in many cases below 2.5% – and that is before you take into account interest, taxes and other expenses.
Most investors would also be aware that term deposit rates are at record lows and that you would be lucky to generate a net return of more than 2%.
The fixed income market is also offering record low yields with lower interest rates pushing up bond prices.
That leaves the sharemarket, which I believe offers investors the best opportunity to get an attractive level of income, albeit with a higher level of risk.
Three shares that I think income investors could consider against the backdrop of lower interest rates include:
BWP Trust (ASX: BWP)
BWP Trust isn’t the most exciting stock on the ASX but investors can be confident they are investing in a business that will be a consistent performer. Importantly, it leases out the majority of its property portfolio to Bunnings Warehouse which means demand for its properties is likely to remain high for the foreseeable future. Investors will also benefit from a growing dividend as BWP Trust generally implements annual rent increases higher than the level of inflation. Even though the shares have performed extremely well over the past 12 months, investors are still being offered a dividend yield of around 4.5%.
G8 Education Ltd (ASX: GEM)
It’s hard for income investors to go past the childcare operator when you consider it is offering a fully franked dividend yield of 6.5%. That grosses up to 9.3% when franking credits are taken into account and is also paid quarterly. Although the dividend yield alone is attractive, I believe the underlying fundamentals of the business should also attract investors looking for growth. The childcare sector is being supported by some strong tailwinds and G8 Education remains well placed to capitalise on these opportunities over the medium term.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
There are a whole range of ETFs offering exposure to high-yielding shares but I have selected the one provided by Vanguard as it’s is one of the most popular. ETFs are useful for investors looking for immediate diversification and not wanting to worry about ‘picking stocks’. They are generally low costs products and most of the high yielding ETFs are currently offering a partially franked dividend yield of between 5%-6%. Investors should note, however, that although ETFs are sometimes marketed as low risk products, they are still exposed to the swings of the overall market.
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Christopher Georges 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.