If you want to earn an income from traditional interest-bearing assets like term deposits, it is becoming increasingly difficult.
For example, at present Westpac Banking Corp (ASX: WBC) is offering 0.85% per annum yields on its 12-month term deposits. This is roughly in line with what other banks are offering.
Based on this rate, if you invested $1 million into these term deposits, you'd only get $8,500 of income each year. Which is certainly not enough to live on.
Fortunately, the Australian share market is home to a number of ASX dividend shares which offer vastly superior yields.
Two ASX dividend shares that I think would be great as part of a balanced income portfolio are listed below. Here's why I would buy them:
BWP Trust (ASX: BWP)
The first dividend share to buy instead of a term deposit is BWP Trust. It is the largest owner of Bunnings Warehouse sites in Australia with a portfolio of 68 stores leased to the hardware giant. Pleasingly, thanks to the strength of the Bunnings business, the trust appears to have been unaffected by the pandemic and continues to collect rent as normal. As a result, it is able to pay its distribution as normal this year. Looking ahead, I feel the trust is well-placed to grow its distribution modestly each year for the foreseeable future. Based on the current BWP share price, I estimate that it offers a generous 3.8% FY 2021 distribution yield.
Rural Funds Group (ASX: RFF)
Another dividend share that I think would be better than term deposits is Rural Funds. It owns a diversified portfolio of high quality Australian agricultural assets which include cattle properties, vineyards, and orchards. The main attraction to the company for me is its long tenancy agreements. With a weighted average lease expiry of over a decade and rental increases built into contracts, Rural Funds appears well-positioned to increase its distribution each year for a long time to come. This will be the case in FY 2021, with management intending to lift its distribution by 4% to 11.28 cents per share. Based on the current Rural Funds share price, this represents a forward 5.6% yield.
