With the Reserve Bank of Australia (RBA) looking likely to cut interest rates again next month to what would be a new record low cash rate of 0.75%, your savings accounts and term deposits are likely to take another hit. Even if the RBA holds off in October, you would be hard pressed to find any commentator predicting that we will still be at 1% by the end of 2019.
This all means that what futile interest your cash is returning you today will most likely be below the rate of inflation by the end of the year. Which means it no longer qualifies as an effective investment.
Dividend paying shares are a good answer to this problem. With yields of 4, 5 or even 6%, the ASX is starting to look like the only place to get decent income outside the property market. So here are 3 ASX shares that I would buy for dividend income today
National Australia Bank Ltd (ASX: NAB)
I'm bullish on NAB, as its new CEO Ross McEwan (who starts in December) has an illustrious track record of performance and I think will prove far more effective than NAB's previous executive team that were forced out after the 2018 Royal Commission.
NAB shares have been on a tear lately, hitting a new 52-week high of $29.96 just this afternoon and banking a YTD price return of 26.5%. Although this means that the starting yield NAB shares are offering has dropped from close to 7% a month or two ago to 6.09% on today's prices, it's still more than triple what you would get from a NAB term deposit (even more if you factor in franking credits).
Medibank Private Ltd (ASX: MPL)
Medibank shares have also had a stellar 2019, rising from $2.50 a share to today's price of $3.44 (a 37% gain). Still, Medibank is offering a starting yield of 3.81%, which looks even better considering this company has raised its payout every year since it was floated back in 2014.
I expect private health insurance will continue to attract significant government tax breaks as it keeps pressure of the public Medicare system. For this reason I remain bullish on Medibank and think this company remains a strong income play, while also offering the potential for significant capital growth over the coming years.
Foolish takeaway
In my opinion, both of these stocks would be great investments to replace your cash-based assets going forward. Easy yield is no longer simple to come by, so why not broaden your ASX watchlist!
