The return that people can make from term deposits and savings accounts is pretty grim compared to a few years ago. With $1 million in the bank you used to be able to earn more than $60,000 annually, but now you'll be lucky to get $30,000.
I think the best way to generate income these days is with dividends from shares.
A high yield doesn't necessarily mean it's a good yield. The underlying business needs to be growing and it needs to have a sustainable dividend payout ratio. Telstra Corporation Ltd (ASX: TLS) is a good example of what can go wrong if you don't pay attention to those two aspects.
You might be a good stock picker that can choose the right businesses to own. However, it may be safer to let other people make the choices for you, such as investment managers.
Here are three shares I think are worth owning for dividends and growth:
WAM Capital Limited (ASX: WAM)
WAM Capital is the largest listed investment company (LIC) run by Wilson Asset Management.
It looks to invest in smaller, undervalued growth companies that have a good chance of beating the market. This approach clearly works as WAM Capital's portfolio has soundly beaten the market over long time periods.
I really like WAM Capital's strategy and that it keeps a lot of cash on hand for safety and opportunities.
WAM Capital is currently trading with a grossed-up dividend yield of 8.97%.
Magellan Global Trust (ASX: MGG)
Magellan is a new trust listed by Magellan Financial Group Ltd (ASX: MFG).
It recognises that there aren't many truly great opportunities on the ASX for investors and you need to look abroad for most of the world-class opportunities like Apple, Alphabet Inc and PayPal.
Magellan Trust has committed to paying a 4% yield on the net tangible assets each year, which should give investors solid income and growth.
Australian Foundation Investment Co. Ltd (ASX: AFI) (AFIC)
It's hard to look beyond Australia's biggest LIC to provide income. It's been around for almost a century and it wouldn't surprise me if it were around in another century.
The company invests in the large businesses of Australia like Commonwealth Bank of Australia (ASX: CBA) and BHP Billiton Limited (ASX: BHP).
It has grown or maintained its dividend each year for the past two decades, giving shareholders certainty with their income.
AFIC is currently trading with a grossed-up dividend yield of 5.77%.
Foolish takeaway
If your main focus is solid income now and long-term capital growth, then the above three shares should be a good fit for your portfolio.
AFIC is the only one I don't own out of the three, I imagine I will 12 months from now.
