A lot of 'mum and dad' or retiree type investors will be looking to invest their cash savings into the share market given the RBA has cut benchmark interest rates to just 1%.
For example a typical two-year term deposit at the Commonwealth Bank of Australia (ASX: CBA) now offers just 1.7% pa to mean your money is going basically nowhere once you adjust for inflation.
Moreover, the problem with leaving your money in cash is going to be horribly amplified if other assets classes such as property and shares grow strongly over the next two years or more. As your cash will be worth the same, but property or shares have raced higher in value.
Already we've seen the S&P/ ASX200 (ASX: XJO) hit an all-time and 12-year high this week, with strong auction clearance rates in property markets suggesting house prices are recovering.
So what's an investor to do?
Personally I would not buy into the popular blue-chip dividend favourites of the big four banks like CBA, National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC). We've already seen NAB slash its dividend 16% and I expect other banks may follow given the squeeze on their net profit margins.
Another favourite I expect has another dividend cut up its sleeve is Telstra Corporation Ltd (ASX: TLS), as such I wouldn't buy shares myself.
From what I've seen a common retail investor mistake is to underestimate the impact dividend cuts could have on their total returns.
Of course it's easy to say don't buy this or that share, or suggest shares that don't even pay yields above 4% today.
After all if you're in retirement you want income today not in 2025.
So here are two blue-chips yielding above 4.5% I'd buy today.
Scentre Group Ltd (ASX: SCG) is the operator of the Westfield shopping centre assets and is restructuring its portfolio to only focus on prime assets in prime urban locations. This in part is in response to the rise of online shopping as it seeks to make its shopping centres fun destinations with fancy food courts, entertainment, and the like.
It's forecast dividends of 22.6 cents per share in 2019 which puts it on a yield of 5.7% today, that's reasonable given the strength of this business and 1% benchmark rates in Australia today.
Macquarie Group Ltd (ASX: MQG) provided a trading update today and its new CEO is sticking to her guidance for full year profit ending March 31 2020 to be "slightly down" on FY 2019.
I expect this might be on the conservative side though given a new CEO at Macquarie would definitely not want to cough up a profit downgrade in their first year in the role.
I think it's just about reasonable to assume the bank can match last year's $5.75 per share in dividends (45% franked). That places it on a 4.5% yield based on a $128.90 share price. If you're lucky and capital markets post a strong 12 months you might get some reasonable capital growth too.
Remember though that share market investing carries substantial risks and any investment should be a small part of a balanced investment portfolio.
If Scentre or Macquarie aren't your cup of tea, or you just want more great ideas then read on below for FREE….
