If you're trying to earn an income in this low interest rate environment, then it is becoming increasingly difficult to do so with term deposits.
For example, at present Commonwealth Bank of Australia (ASX: CBA) offers interest rates of 1% per annum on five-year term deposits. This is broadly in line with what you'll find with the rest of the big four.
The good news is that the Australian share market has a good number of shares offering significantly better yields and potential capital returns as well.
In light of this, I would suggest income investors consider skipping term deposits in favour of the three top shares listed below:
Coles Group Ltd (ASX: COL)
Although this supermarket operator's shares don't provide the biggest yield on the ASX, I think it could be a good option because of its solid growth prospects and favourable dividend policy. The latter sees the company aim to pay out between 80% and 90% of its earnings to shareholders. In respect to its growth prospects, Coles look well-placed thanks to its cost reductions program, expansion opportunities, defensive qualities, and the return of rational competition. I estimate that its shares currently provide a fully franked forward 3.8% dividend.
Commonwealth Bank of Australia
Rather than putting your funds into its term deposits, I would be buying this banking giant's shares. Especially given the generous dividend yield they offer investors in this low interest rate environment. Even after factoring in a probable and sizeable dividend cut to $3.71 per share in FY 2021 to reflect the tough trading conditions the banks are facing, Commonwealth Bank's shares provide a juicy forward fully franked 6.3% dividend yield.
Transurban Group (ASX: TCL)
I think that this leading toll road operator could be a good long term option for income investors. Although its roads have experienced a sharp reduction in traffic volumes due to lockdowns and travel restrictions, I expect them to bounce back once restrictions ease. And while this is likely to mean that its final distribution is cut accordingly, I don't believe it will be long until its distributions return to normal. In light of this, I think it would be well worth taking advantage of the recent pullback in its shares. I estimate that its shares provide a 4% FY 2021 yield.
