10 cheap dividend shares that smash term deposits

These shares pay big dividends and trade on cheap valuations.

a woman

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According to a popular comparison website, the best 12-month term deposit rate available at the moment is 3%.

However, when taxes and inflation are taken into account, most investors will be left with a real net return of somewhere closer to 0.5%-1%.

Forget that!

Here are 10 shares that pay big dividends and offer the possibility of big capital gains as well:

Company  Market Cap Dividend Yield Grossed-up Yield P/E Ratio
APN Outdoor Group Ltd (ASX: APO)
$918 million 3.6% 5.2% 18.6
Automotive Holdings Group Ltd (ASX: AHG)
$1.35 billion 5.6% 8.0% 13.3
Dicker Data Ltd (ASX: DDR)
$381 million 6.9% 9.9% 14.8
Macquarie Group Ltd (ASX: MQG)
$30.2 billion 4.7% 5.6% 14.6
Retail Food Group Limited (ASX: RFG)
$914 million 5.8% 8.4% 12.5
Sealink Travel Group Ltd (ASX: SLK)
$431 million 3.3% 4.7% 17.6
Collins Foods Ltd (ASX: CKF)
$557 million 3.4% 4.9% 14.2
RCG Corporation Ltd (ASX: RCG)
$548 million 6.2% 8.9% 13.4
McMillan Shakespeare Limited (ASX: MMS)
$1.1 billion 4.8% 6.9% 12.6
Mantra Group Ltd (ASX: MTR)
$863 million 4.6% 6.7% 16.7

Source: CommSec

A quick calculation reveals that the average grossed-up dividend yield from the shares above is around 6.9% – more than double what is available from even the highest paying term deposit.

However, it is important that investors also look at the capital gain side of the equation.

There is the chance that the shares could fall in value over the short term, although I believe that all of the shares listed above will trade at higher prices over the medium to long term on the back of improving growth outlooks and undemanding valuations.

If I had to choose two shares to buy right now, they would include:

  1. Mantra – As one of Australia's premier accommodation providers, I think Mantra is well placed to capitalise on the tourism boom. The company has a growing portfolio of properties and has seen occupancy rates stay strong, despite concerns around increasing competition.
  2. Retail Food Group – Shares of Retail Food Group have fallen by around 30% over the past few months and are now trading at a pretty big discount to the broader market. The company recently confirmed it remains on track to deliver double-digit earnings growth and I think concerns around industrial relations issues have been overplayed.
Motley Fool contributor Christopher Georges owns shares of APN Outdoor Group Ltd, Macquarie Group Limited, MANTRA GRP FPO, RCG Limited, and Retail Food Group Limited. The Motley Fool Australia owns shares of Retail Food Group Limited. 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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