The money you can earn from a term deposit these days is truly dismal. An interest rate of 3% will probably only let you holiday to your local caravan park let alone another state’s caravan park.
I think the best way to create good dividend income is to buy dividend shares with decent yields. Here are three that could fit the bill:
Telstra Corporation Ltd (ASX: TLS)
Telstra is the big dividend company that every investor has an opinion on.
It has seen its share price plummet down to $3.49 after it was announced that the future annual dividend per share will be reduced to 22 cents.
However, this still means the grossed-up dividend yield is actually 9% and the business still generates significant cash each year with its impressive mobile network.
Mortgage Choice Limited (ASX: MOC)
Mortgage Choice is one of the largest loan brokers in the country. It earns most of its revenue from the upfront and trailing commissions it receives from brokering the loans.
Its low-cost model allows the business to earn good profit and pay a big dividend. Its grossed-up yield is currently 11.4%.
G8 Education Limited (ASX: GEM)
G8 is one of the biggest childcare operators in Australia and is expanding further with more acquisitions.
Management have taken the correct step of reducing the dividend to 70% to 80% of underlying net profit after tax to ensure the balance sheet is in good order. The new grossed-up yield based on a dividend of $0.20 per share in 2018 will be a grossed-up yield of 6.64%.
All three businesses have impressive yields, but each of them are risky and I’d be careful about the price you pay for them. At the current prices I’d only be interested in Telstra, not the other two, due to the potential of the 5G network.
I’d much rather buy our number one dividend pick for FY18 for income over any of the other three ideas.
You might not know this market leader, but it’s making waves in Asia and already boasts a term-deposit-crushing dividend of almost 5%. A debt free balance sheet and dominant market position at home and abroad mean this company offers investors income and some real-deal growth potential.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Telstra 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.