With the cash rate being tipped by some experts to be taken down to zero in 2020, now could be a very good time to consider switching out of term deposits and into one of the many dividend-paying shares listed on the Australian share market.
Three dividend shares that I think would be great alternatives to term deposits are listed below. Here’s why I like them:
Scentre Group (ASX: SCG)
The first share that I think would be a good term deposit replacement is Scentre Group. It is the property company which owns all the Westfield properties in the ANZ region. Due to the quality of these assets and the strong demand it has for tenancies, I believe the company is well-placed to grow its distribution at a steady rate over the next few years at least. At present its units offer a trailing 5.6% distribution yield. Though, it is worth noting that they trade ex-distribution today, so investors will have to wait another six months for its next payout.
Sydney Airport Holdings Pty Ltd (ASX: SYD)
I think the owner and operator of Sydney Kingsford-Smith International Airport is another good option for investors in search of a reliable source of income. Although the tourism boom is showing signs of ending and passenger growth is slowing, I still believe the company is capable of growing its income and dividend at a rate quicker than inflation. Furthermore, I expect its status as a so-called “bond proxy” could lead to its shares pushing notably higher over the next couple of years if the Reserve Bank continues to cut rates and push bond yields down to lower and lower levels. Sydney Airport’s shares offer a 4.5% dividend yield at present.
Transurban Group (ASX: TCL)
Finally, my favourite alternative to a term deposit is Transurban. This is because I believe the toll road operator is one of the best income options on the market due to its long track record of increasing its dividend. It has been able to achieve this due to its high quality assets, the growing number of vehicles on its roads, strong pricing power, and acquisitions and developments. A perfect example of the latter is the recent $468 million acquisition of the remaining minority interests in M5 West. This is expected to be immediately free cash flow and value accretive and should support its plan to increase its distribution by 5.1% to 62 cents per security in FY 2020. This equates to a forward 4.1% forward yield.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. The Motley Fool Australia has recommended Scentre Group. 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.