Everyone is looking for yield these days. Earning less than 2% in the bank just isn’t going to cut it. No-one wants to eat into their capital, you just don’t know how long it’s going to have to last.
Maybe dividend shares are the answer. You could easily double your yield whilst still investing in fairly safe businesses. So, what about Transurban and Sydney Airport?
Well, Sydney Airport has a dividend yield of 4.5%.
Transurban has a distribution yield of 3.9%.
Looks better compared to a term deposit.
The problem is that asset prices have already risen so high. It doesn’t make sense to reach for 2% or 3% more yield if the asset or share you’re considering is 10%, 20% perhaps 30% overvalued compared to the price it would be trading at if interest rates were just a bit higher. I’m not saying that Sydney Airport or Transurban are 30% overvalued, but their share prices are undoubtedly a lot higher than if interest rates were 1.5% higher, or even just 1% higher. We don’t don’t know which way interest rates are going this year or next year.
The whole point of investing is to choose something that you think is good value. Imagine if occasionally supermarkets were to add 20% onto the price of something for a month rather than discount it – you’d just wait until the price of that product went back to normal, right?
However, no-one has a crystal ball. No-one can say when, or if, interest rates will ever go back to ‘normal’.
We can at least go for dividend shares that don’t seem expensive. Some of the dividend shares I’ve got my eyes on at the moment are: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Brickworks Limited (ASX: BKW), Future Generation Investment Company Ltd (ASX: FGX), Wam Microcap Ltd (ASX: WMI) and PM Capital Global Opportunities Fund Ltd (ASX: PGF).
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Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, PM Capital Global Opportunities Fund Ltd, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited, Transurban Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks. 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.