Term deposits are just not producing enough income for people these days.
I think there are only two choices. Either accept the low returns and eat into the capital, or take on the volatility on the share market but receive a good level of income from ASX dividend shares.
I'm not sure what dividend yield is needed to count as a dividend share these days because of how low interest rates have gone.
I've got my eye on these three ASX shares that have yields of 3% or higher than the RBA cash rate.
Bapcor Ltd (ASX: BAP)
Bapcor has a grossed-up dividend yield of 3.8%.
The company has increased its dividend each year since 2015 when it started paying dividends. It's the largest auto parts business in the region with its Burson & Autobarn chains as well as a number of wholesale businesses.
Its earnings are fairly defensive because in downturns you'd expect more people to repair and replace car parts rather than buying a new car.
Bapcor has also expanded into two new areas. It has acquired a few truck part businesses and it's also opening locations in Asia.
Rural Funds Group (ASX: RFF)
Rural Funds has a FY20 distribution yield of 5.6%.
The farmland real estate investment trust (REIT) has increased its distribution each year since it started paying one in 2014. It has a variety of farm properties including almonds, macadamias, cotton, cattle and vineyards.
The built-in rental increases in the contracts with tenants allow Rural Funds to predict that the distribution can grow by 4% a year for the foreseeable future.
Profit re-investment into improvements at existing farms and future acquisitions should help Rural Funds continue to grow its distribution at a pleasing inflation-beating rate.
Future Generation Investment Company Ltd (ASX: FGX)
Future Generation has an annualised grossed-up dividend yield of 5.8%.
The special listed investment company (LIC) has increased its dividend each year since it started paying one in 2015.
It potentially has the most diverse portfolio of any LIC on the ASX. It's invested in the portfolios of almost 20 ASX-focused fund managers who work for free and try to generate good returns for Future Generation so it can donate 1% of its net assets to youth charities.
Aside from the excellent philanthropic nature of Future Generation, I really like it because it aims to grow the dividend each year if economic factors allow.
It's currently trading at an 8% discount to the net assets at November 2019.
Foolish takeaway
In my opinion these are three of the most defensive dividend shares on the ASX and their dividends are likely to keep growing for the next few years. At the current prices Bapcor is trading closer to a six-month low, but I like the diversification of Future Generation and its yield.
