Currently, most Australian bank accounts are paying less than 2% interest. It’s really not much and it will be hard to get rich on bank interest. ASX 200 dividend shares, on the other hand, come with a number of advantages.
Why buying ASX 200 dividend shares is a better option
Firstly, dividend shares usually come at least partly franked. This means some or all of the taxes you need to pay on those dividends are already paid for you. Bank interest, on the other hand, does not come with franking credits so the whole amount is counted as taxable income.
Additionally, dividend shares can offer a higher return than bank interest. Currently, there are a number of ASX 200 shares yielding between 3% and 6%, or higher. These returns could help you to build wealth much faster than relying on minimal bank interest.
Further, dividend shares offer another advantage, capital appreciation. As the companies that you are invested in grow, you can expect to see the share price rise over the long term. While this does not provide an immediate result if you buy for dividends, you can sell the shares later and usually see an additional return in the form of capital appreciation.
Sound convincing? Check out the ASX 200 dividend share options below and see whether they fit your portfolio preferences.
BHP Group Ltd (ASX: BHP)
The BHP share price is $36.25 at the time of writing. BHP has proven itself over the years as a solid payer of dividends to shareholders. In 2010, BHP paid dividends of 87 cents per share. Fast forward to 2019 and BHP paid dividends of $1.33. That’s an increase of 52.87% in dividends in less than 10 years. Currently, BHP sits on a trailing fully franked dividend yield of 6.05%.
Currently, BHP produces iron ore, coal, copper, nickel and petroleum. It does this from high-quality assets in Australia, the UK, North America, South America, Africa and the Caribbean. It currently has a number of projects under development and has, as announced so far, continued these despite the recent coronavirus pandemic.
Brickworks Limited (ASX: BKW)
The Brickworks share price is $15.40 at the time of writing. Brickworks has been listed on the ASX since 1962 and its origins date back to 1934. It has grown or maintained its dividend every year since 1976. Despite the effects of several recessions and other market turmoil over the last 44 years, Brickworks has an outstanding track record of paying dividends to shareholders. Currently, Brickworks trades on a fully franked dividend yield of 3.96%. In 2010, Brickworks paid dividends of 40 cents. Last year, however, the company paid dividends of 57 cents. This equates to an increase of 42.5% over the period.
Brickworks is a building materials, construction and investment group with exposure to the residential and commercial property markets in Australia and the US. According to a recent announcement, Brickworks is currently Australia’s largest brick manufacturer with a market position in every state. It also produces masonry, roofing, walling and flooring products. Brickworks also has a $710 million stake in a joint venture property trust with Goodman Group (ASX: GMG). This generates a rental income of 6% per year and last year provided a capital appreciation of 11%. Additionally, Brickworks has a 39.4% share in investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) worth $1.8 billion. In turn, this company owns a 44.1% stake in Brickworks.
Transurban Group (ASX: TCL)
At the time of writing, the Transurban share price is $14.83. Transurban listed on the ASX in 1996 and was founded to build the Citylink toll road in Melbourne. Transurban has paid a dividend every year since 2002. In 2010, Transurban paid 25 cents in dividends. Going forward to 2019, Transurban paid a dividend of 61 cents. This was an increase of 144%. Transurban trades on a fully franked trailing dividend yield of 4.12%.
Transurban has a stake in 18 toll roads, tunnels and bridges in Australia, the US and Canada. This gives it a diversified income with the company receiving tolls from sources in 3 different countries. Transurban has continued its expansion projects during the coronavirus shutdowns. It currently has 3 projects underway with 2 set to be completed in 2021 and one set to be completed in 2023. These projects will deliver new revenue streams as operating rights on existing toll roads begin to age. Additionally, Transurban is currently pursuing more opportunities in Australia and the US.
With bank interest low at present, investors can realise other opportunities to earn income such as through ASX 200 dividend shares. Additionally, this income can come with franking credits and can provide the potential for capital appreciation. While some may see bank deposits as a safe bet, with returns of less than 2% it is likely that their capital will get swallowed up by inflation. The high-quality ASX shares identified could provide ongoing dividends higher than bank interest. These can be coupled with long-term capital gains. This writer thinks you should forget bank interest and invest in high-quality dividend shares instead.
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Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Brickworks. The Motley Fool Australia owns shares of Transurban Group. 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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