This afternoon the Reserve Bank elected to keep rates on hold at the record low of 0.25%.
However, it might be a little too soon for income investors to celebrate, because the central bank appears to have left the door open to a rate cut in November.
Governor Lowe commented: “The Board continues to consider how additional monetary easing could support jobs as the economy opens up further.”
In light of this, I think investors ought to consider buying the dividend shares listed below to combat low interest rates:
Rural Funds Group (ASX: RFF)
The first ASX dividend share to consider buying is this real estate investment trust. Rural Funds owns a portfolio of high quality agricultural assets across several different industries. This includes macadamia orchards, cattle assets, cotton assets, almond orchards, and vineyards. The latter are leased to wine giant Treasury Wine Estates Ltd (ASX: TWE). In addition, many of its other assets are leased to some of the most experienced agricultural operators in the country, which I feel is a testament to their quality.
The strength of its portfolio was on display for all to see in FY 2020 when Rural Funds delivered an 8% increase in property revenue to $72 million. This allowed the company’s board to increase its distribution by its target rate of 4% per annum. The good news is that more of the same is expected in FY 2021 thanks to its long term tenancy agreements and periodic rent increases. Management intends to increase its distribution by 4% again to 11.28 cents per share. Based on the latest Rural Funds share price, this equates to a 4.9% yield.
VanEck Vectors Australian Banks ETF (ASX: MVB)
Another option for income investors to consider buying is the VanEck Vectors Australian Banks ETF. As you might have guessed from its name, this exchange traded fund gives investors exposure to the banking sector. And rather than having to choose just a single bank to invest in, this fund gives investors a piece of each of them. The VanEck Vectors Australian Banks ETF is invested in the big four banks, the regionals, and also investment bank Macquarie Group Ltd (ASX: MQG).
While predicting what dividends the banks will collectively pay in FY 2021 is difficult because of the pandemic, I would expect a yield in the region of 4%. This could then rise towards 6% in the following couple of years as trading conditions return to normal. Another bonus is that I think the banks are trading at attractive levels at the moment after sizeable declines this year. So, as well as benefiting from dividends, investors could experience solid share price gains over the next couple of years as bank shares potentially rerate to higher multiples.