With bank interest rates so low, having your money sitting in a bank account or a term deposit will actually see your investment go backwards after you factor in inflation.
So, why not put your money into some top dividend-paying shares?
Here are my 4 top picks.
Macquarie Group Ltd (ASX: MQG)
Macquarie is a global financial services business with a core focus on international investment banking. It truly has been an Australian success story, with a strong track record of profitability over the last few decades. Macquarie continues to grow its revenue and net profit, while its cost-to-income ratio has been steadily declining over recent years.
Macquarie has also outperformed the big four banks – Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) – over the last 10 years with regards to annual profitability growth.
I think Macquarie is a great choice for both growth and income, and the business is well placed to outperform the ASX 200 over the next 5 to 10 years. It currently pays a solid dividend yield of 4.2%, partially franked, and has an attractive price-to-earnings (P/E) ratio of 17.1 at the time of writing.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is a highly diversified business with operations in general retail segments including home improvement, general merchandise and office supplies, as well as industrial segments with operations in chemicals and energy. Wesfarmers subsidiaries include household names such as Bunnings Warehouse, Kmart Australia and Officeworks, and online retailer division Catch.
This diversification across a broad spectrum of the Australian economy is Wesfarmers' core strength, as it provides a buffer to any industry-specific challenges. I like Wesfarmers – its shares give you instant access to a diverse portfolio of high-quality companies, driven by a quality and experienced management team. Wesfarmers currently offers a dividend yield of 3.7%, fully franked.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts has market exposure to a broad range of industries, including pharmacies, telecommunications, mining and building products. This diversification makes it an excellent defensive share by acting as a buffer to any market volatility. It has an excellent long-term track record of outperforming the ASX index and I believe that this trend is set to continue over the next decade.
Soul Patts has been listed on the ASX for over a century and has paid a dividend every year during that time. Rather than being burdened with too much debt, the company keeps significant amounts cash on its balance sheets, which positions it well to grab any future investment opportunities. It currently has an attractive P/E ratio of 18.3 and pays a dividend yield of 2.6%, which is a bit lower than my other recommendations, however it is fully franked.
Telstra Corporation Ltd (ASX: TLS)
As you may be aware, Telstra is Australia's largest telecommunications provider, and has held the number 1 position in Australia's telco market for many decades. It has been undergoing some recent short-term pain as it restructures into a leaner company, as Australia's National Broadband Network (NBN) continues to be rolled out. However, I believe that this strategy will position it well to remain in the number 1 market position and more effectively compete with the growing competition in the fixed broadband market.
Telstra recently revealed that it's on track to remove a total of $2.5 billion in costs by 2022. Telstra is also, I feel, ideally positioned to fully leverage the potential opportunities of 5G technology. It currently provides a solid dividend yield of 3.5%, fully franked, and has an extremely attractive P/E ratio of 11.2.
