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3 income shares to beat term deposits

Credit: GotCredit

It’s getting harder to find good sources of income these days with banks offering a very pitiful interest rate on money in the bank. The best rate you can find these days is between 2.8% to 3%, depending on the bank and its rules.

Shares are the only game in town to generate good income, which is why income investors would be well suited to look at some shares on the ASX.

However, just because something has a big yield doesn’t mean it’s necessarily good.

Here are some options I think dividend investors should be interested in:

Rural Funds Group (ASX: RFF)

Rural Funds currently offers a distribution yield of 4.85% for FY19. It’s a farmland landlord real estate investment trust (REIT) with properties in the sectors of almonds, macadamias, cattle, poultry, vineyards and cotton.

Aside from the pleasing yield, I think it’s a good income idea because of its high-quality tenants, such as Select Harvests Limited (ASX: SHV) and Treasury Wine Estates Ltd (ASX: TWE). It’s also ideal because it has rental increases of 2.5% per annum or CPI inflation built into the contracts, meaning should mean long-term growth.

Management predict the distribution can grow by 4% per year into the future, which soundly beats inflation.

Arena REIT No 1 (ASX: ARF)

It currently offers a distribution yield of 5.6%. Arena is one of the largest childcare REIT landlords in Australia, it also leases a few healthcare buildings to Primary Health Care Limited (ASX: PRY).

One of the main things I like about Arena is that it has an occupancy rate of 100% and a weighted average lease expiry (WALE) of 12.9 years. Whilst childcare is not a fast-growing industry, Arena’s portfolio offers a solid source of income with a good level of government support for the industry.

WAM Leaders Ltd (ASX: WLE)

It currently offers a grossed-up dividend yield of 5.9%. This is a listed investment company (LIC) that is run by the high-performing Wilson Asset Management (WAM) investment team.

WAM Leaders focuses on the largest shares on the ASX, indeed a lot of its top holdings are also the biggest companies. However, over the past year its portfolio has returned 17.2% before fees and expenses – a solid performance.

It aims to steadily increase the dividend each year if it is able to do so with the profit reserves and franking credits available whilst holding a decent amount of cash on hand for protection and opportunities.

Foolish takeaway

All three of the above shares are some of the better income shares on the ASX in my opinion. Rural Funds is my favourite of the three, however it’s trading at a large premium to its underlying value per unit. Even so, I think it’s the safest income choice – farmland has been useful for hundreds of years.

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Motley Fool contributor Tristan Harrison owns shares of ARENA REIT STAPLED and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia has recommended Treasury Wine Estates 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 Scott Phillips.

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