Earlier today I wrote about how Westpac Banking Corp (ASX: WBC) expects the cash rate to remain on hold at the record low of 0.25% until at least the end of 2023.
While this is good news for borrowers, it would be a blow to savers and income investors who will have to deal with low interest rates for a long time to come.
But don't worry because the Australian share market is a great place to earn a passive income thanks to the abundance of quality dividend shares.
Three top dividend shares that I would buy to beat low rates are listed below. Here's why I like them:
Rio Tinto Limited (ASX: RIO)
I think Rio Tinto is a great option for income investors that are not averse to investing in the resources sector. The mining giant has been a strong performer over the last few years and has continued this positive form in FY 2020. It recently released its first quarter update which revealed that it is on track to achieve its Pilbara iron ore shipments guidance in FY 2020. This is a big positive as iron ore demand remains strong and the steel making ingredient is commanding elevated prices right now. In light of this, I estimate that its shares offer a forward fully franked 4.5% dividend yield.
Telstra Corporation Ltd (ASX: TLS)
Another way to beat low interest rates could be with Telstra's shares. I believe they offer investors a great combination of value and income. With peak pain from the NBN on the horizon, I feel a return to growth isn't too far away. Especially when you consider its major cost cutting program, increasing data consumption, and the return of rational competition. I don't think this is fully reflected in its shares and could mean they rerate higher over the next 12 months. In the meantime, I am optimistic its free cash flows are sufficient to maintain its 16 cents per share dividend for the foreseeable future. This equates to a fully franked 5.2% yield.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
A final option for income investors to consider buying is the Vanguard Australian Shares High Yield ETF. I think this exchange traded fund is a great option for income investors that are looking for an easy way to diversify their investments. This is because it provides investors with exposure to many of the highest yielding blue chip shares on the ASX through a single investment. At present I estimate that its units offer a forward dividend yield of at least 5%.
