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Replace your term deposit with these 3 ASX dividend shares

With the Reserve Bank of Australia (RBA) cutting interest rates yet again, it seems as though income-seekers can no longer rely on term deposits to live off.

That’s why I think the only option in town is ASX shares for dividends. But, I’d only want to consider shares that seem as though they might offer income almost as reliable as term deposits. That’s why I would think about the shares below for income:

Viva Energy Reit Ltd (ASX: VVR)

Whilst this wouldn’t normally be one of my picks for income, the business does seem to have its earnings fairly locked in over the coming years. It owns a large portfolio of service stations and leases them to Viva Energy Group Ltd (ASX: VEA).

The real estate investment trust (REIT) has a weighted average lease expiry (WALE) of 12.6 years with 3% per annum rent increases built in. There’s not much upside on top of that growth, it’s not like it can re-invest much into the properties, but in this era it could be quite attractive with a distribution yield of 5.2%.

Rural Funds Group (ASX: RFF)

Rural Funds is another REIT which owns farmland and leases it to high-quality tenants like Select Harvests Limited (ASX: SHV).

It has rental increases which are linked to either CPI inflation or a fixed 2.5% increase, which helps management feel confident enough to predict that its distribution can grow by 4% per annum over the foreseeable future.

It currently has a distribution yield of 4.5%. I really like its diversified property portfolio of cattle, cotton, almonds, macadamias, poultry and vineyards.

Australian Foundation Investment Co.Ltd. (ASX: AFI)

AFIC is one of the oldest listed investment companies (LICs) in the world. Its job is to invest in other ASX shares on behalf of its shareholders and benefit from the capital growth and dividends as the years go by.

Over the past 20 years AFIC has maintained or grown its dividend every single year, including through the GFC, so it would take a heavy Australian recession for even a chance of AFIC to cut the dividend. It also has a very low management expense ratio. 

AFIC currently has a grossed-up dividend yield of 5.5%.

Foolish takeaway

All three of these shares are not trading at what I would call cheap value. I may be a little biased, but I think Rural Funds is the best option of the three as it offers a defensive earnings profile, long-term earnings growth and a pleasing distribution growth rate.

Other ASX to consider for their income potential and capital growth are these leading ASX businesses which could suit most portfolios.

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended 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 Scott Phillips.

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