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3 unloved contrarian ASX dividend shares to beat term deposits

I think we have to consider investing in ASX shares to beat the returns of term deposits and typical blue chips.

I wouldn’t want to invest in a lot of the largest shares on the ASX at the moment due to their higher valuations or low-growth outlooks.

Sometimes it’s a good idea to think about shares that are currently unloved by investors but could actually be cheap dividend stocks:

Rural Funds Group (ASX: RFF) 

The farmland real estate investment trust’s (REIT) share price is down around 15% since the start of August due to a short attack alleging a number of bad actions by Rural Funds Management (RFM), but RFM has defended itself against all the charges.

I think the depressed share price could be a buying opportunity for income investors who are looking for a solid yield with dependable growth potential. Rural Funds has rental income increases built into its contracts which allow management to forecast 4% distribution growth for the foreseeable future.

The current $2 share price means the FY20 distribution yield is 5.4%.   

Tassal Group Limited (ASX: TGR) 

The Tassal share price is down by almost 15% over the past month.

Prawn expansion is the major reason for the recent $108 million capital raising. Diversifying away from just salmon helps Tassal reduce the risk of its earnings being wiped out by something like disease and offers it another area of potential growth.

Fish consumption keeps growing as consumers here and abroad look for healthy sources for protein and other dietary needs.

Management seem confident in their acquisition moves and Tassal as a whole continues to see higher operating revenue and profit year after year, which is fuelling the steadily-growing dividend.

Tassal currently offers a trailing grossed-up dividend yield of 6%.

Challenger Ltd (ASX: CGF)

The clear annuity leader of Australia has seen its share price fall by around 50% since January 2018. Falling interest rates have hurt profit expectations for the fund manager.

I sold out of my holding because of the low interest rate environment and the uncertainty surrounding how long rates could be low – just look at how long Japan has had low rates.

But, that doesn’t mean it can’t continue to provide attractive dividends and perhaps market-beating returns if people are attracted (or required) to have a guaranteed source of earnings in retirement.

Challenger currently offers a grossed-up dividend yield of 7.2%.

Foolish takeaway

Out of the three, I’m most drawn to Rural Funds because of the likelihood of the slow-and-steady growth of the distribution over time. Tassal and Challenger both have attractive yields, and could be good picks, but there’s a higher chance of their earnings being hurt a lot in any given year.

Other top ASX shares to think about for long-term dividends are these income winners.

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