4 dividend shares to beat term deposit rates “at lowest in living memory”

The Australian Financial Review is reporting that term deposit rates are now at their “lowest in living memory” as banks continue to offer savers almost zero inflation adjusted returns on their cash.

For investments of $5,000 to $499,999 the National Australia Bank Ltd (ASX: NAB) is currently offering one-year term deposit rates of 2.4%, which is not going to pay the bills in retirement let alone the holiday flights and accommodation.

Of course the term deposits are risk free and if you want to secure returns more than double 2.4% you’ll have to take some risk in a share market that also offers the prospect of capital gains.

Let’s take a look at some dividend shares for conservative investors that could offer solid total return prospects on a 2 to 4-year view.

Rural Funds Group (ASX: RFF) is the agricultural property management business that recently raised $78.6 million to reduce its debt and potentially acquire a substantial cattle property over FY18. The group has an excellent track record and offers defensive earnings streams as a real estate investment trust that has a diverse agricultural tenant list.

The group trades on a forecast price to earnings multiple around 14.8x and offers a trailing 5.24% yield, with dividend income paid on a quarterly basis.

Insurance Australia Group Ltd (ASX: IAG) is the Warren Buffett-backed, but Australia focused insurance services business that operates multiple brands like NRMA, CGU and Swann Insurance. Warren Buffett’s area of particular expertise as an investor is insurance and as such I would not bet against IAG’s chances of delivering solid long-term returns. The valuation looks reasonable given the expected profit growth and the stock offers a 4.3% dividend yield plus full franking credits.

Scentre Group Ltd (ASX: SCG) is finally coming into a valuation that reflects the prospect of rising bond yields and risk free rates globally over the years ahead. In fact Scentre Group (as the operator of ANZ’s Westfield shopping centres) shares are down 20% over the past year and now offer a 5.3% yield when selling for $4.02 per share. This is the absolute maximum I would pay for shares as an income seeker and I expect over the 6 to 12 months ahead it may be possible to get the shares up to 10% cheaper.

RCG Corporation Ltd (ASX: RCG) is the footwear retailer behind the Athlete’s Foot and Hype DC brands among others and the stock at 84.5 cents looks cheap to me. The company has suffered a tough start to 2017 amidst generally weak retail conditions, but if you assume it can at least match FY 16’s dividend payout in FY 18 it offers a 6.5% fully franked yield.

The stock sells on around 12x analysts’ estimates for FY18’s earnings that factor in a lot of negativity over competition from the likes of Amazon and others. I expect RCG’s popular footwear brands may beat analysts’ expectations over the short and medium term and deliver investors some strong returns.

Are you planning on a blue-chip retirement?

If term-deposit rates stay low your lifestyle expectancy could stay low with them.

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Motley Fool contributor Tom Richardson owns shares of RCG Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of Insurance Australia Group Limited and RURALFUNDS STAPLED. 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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