I recently went shopping around for a term deposit and it was, in short, a bleak experience. The best interest rate I could find was around 2.1% but that included a ‘loyalty bonus’ upon rollover. Now 2% might be the best that the market is offering the average consumer right now, but there are two problems to this rate I can see. Firstly, 2% is barely, barely keeping up with inflation.
Secondly, with the Reserve Bank of Australia (RBA) all but promising at least one more cut in the near future (maybe even two), there’s no guarantee a 2% rate will be around long anyway.
So I’m looking at dividend paying shares instead – more specifically high-yielding ones throwing off at least 6% (including franking). Here’s what I’ve found
Premier Investments Limited (ASX: PMV)
Premier Investments owns a collection of retail brands/stores, including Smiggle, Peter Alexander, Jay Jays and Just Jeans. Not only are these brands thriving – especially Smiggle and Peter Alexander – but Premier Investments pays out a grossed-up 6.11% dividend yield on today’s prices.
In the retail space, brutal online competition had led to a ‘survival of the fittest’ situation and many ASX retailers such as Myer Holdings Ltd (ASX: MYR) have been publicly struggling, but Premier seems to go from strength to strength. If you’re after some quality retail exposure, or just a meaty dividend, I think you need not look any further than PMV shares.
Telstra Corporation Ltd (ASX: TLS)
Telstra shares have had a pretty rough month or so and are now back to the $3.58 level after briefly touching the $4 mark for the first time in two years in August. Still, lower prices mean higher yields and on today’s prices Telstra shares are offering a grossed-up yield of 6.46%. Although Telstra did cut its latest dividend down to 8 cents per share, I don’t believe we will see any more cuts as the company’s payout ratio is now between 70–90% of earnings.
Further, when you look at the company’s T22 cost cutting program together with 5G infrastructure coming online, I think Telstra is a compelling case right now, both for dividends and maybe even substantial future growth.
In this age of record low interest rates, I think the opportunity to seize a 6% yield is one not to be sneezed at. Both of these companies are solid, high-quality businesses that I believe would do well in any income portfolio.