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Replace your term deposits with these dividend shares

dividends Havery Norman capital return

If your main source of income is from term deposits then it could be a good idea to think about dividend shares.

Getting less than 2% yield from your term deposit from a bank like Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC) just isn’t going to create the desired lifestyle.

However, just because you need income doesn’t mean you should jump into any share. Some higher-yielding shares are trading at fairly high valuations, which is a risk for investors – even if the operational side of the business looks fine.

Here are three dividend ideas:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) 

Soul Patts could be the best dividend share on the ASX. It has increased its dividend every year since 2000 and it has paid a dividend every year in its existence since the early 1900s.

It’s an investment company that takes long-term stakes in various industries like telcos, building products, resources and so on. With this one investment we get good diversification, very capable management, long-term focus and a contrarian approach.

One of the main things that Soul Patts tries to do for shareholders each year is grow its dividend each year, which is entirely funded by the cashflow it receives in the form of investment income.

Soul Patts currently has a grossed-up dividend yield of 3.8%.

Spark New Zealand Ltd (ASX: SPK) 

Spark is New Zealand’s largest telecommunications and digital services company, which offers a defensive source of earnings because nearly everyone wants/needs to stay connected to their telecommunications services.

In the latest result Spark revealed that its net earnings rose by 12.1% to NZ$409 million.

Whilst Spark isn’t going to generate a lot of growth, it seems to have quite defensive earnings, which should mean quite a defensive dividend.

It currently has a trailing dividend yield of 5.2%.

Viva Energy Reit Ltd (ASX: VVR)

This is a real estate investment trust (REIT) which owns service stations and receives rental income from its tenants.

It currently owns over 450 service stations across in Australia, mainly in metropolitan areas. There is a fixed 3% rental escalation with 95% of its properties and it has a weighted average lease expiry of around 12 years, which means it has attractive rental growth locked in for a decade.

The REIT continues to make acquisitions which can further boost the income potential.

It currently has a distribution yield of 5.4%.

Foolish takeaway

Each of these shares offers defensive earnings and defensive dividends. I like that Viva Energy REIT’s rental income and its distributions are essentially locked in, but I’m more attracted to Soul Patts because of its diversification, with wide investment flexibility and long-term return potential.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company 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.

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