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.
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited and Telstra Limited. 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.