The rates on offer with term deposits are the best they have been in years. However, they still pale in comparison to what's available from ASX dividend shares.
So, if your risk tolerance allows for it, it could pay to invest in shares rather than term deposits. But which shares?
Let's take a look at two ASX dividend shares that not only offer better prospective yields but also have the potential to generate meaningful capital returns. They are as follows:
APA Group (ASX: APA)
The first ASX dividend share to consider as an alternative to term deposits is APA Group.
It is an energy infrastructure company that owns, manages, and operates a diverse $26 billion portfolio of gas, electricity, solar and wind assets. This includes delivering around half of the nation's domestic gas through 15,000 kilometres of gas pipeline. It also owns and operates power generation assets across the country.
This portfolio underpins very defensive and predictable earnings. So much so, APA is on course to increase its dividend for the 20th year in a row.
Macquarie is positive on the company and has an outperform rating and $8.47 price target on its shares. This implies a potential upside of ~12% for investors over the next 12 months.
In respect to income, the broker is forecasting dividends of 57 cents per share in FY 2025 and then 58.5 cents per share in FY 2026. Based on the current APA Group share price of $7.57, this equates to 7.5% and 7.7% dividend yields, respectively.
Transurban Group (ASX: TCL)
Analysts at UBS think that Transurban could be a top ASX dividend share to buy.
It is a toll road giant with a portfolio of important roads across both Australia and North America. This includes the Cross City Tunnel and Eastern Distributor in Sydney, as well as CityLink and the West Gate Tunnel Project in Melbourne.
The broker was pleased with the company's performance in FY 2024, noting that it delivered a result in line with expectations. It believes Transurban will build on this in FY 2025 and generate strong free cash flow.
UBS currently has a buy rating and $14.60 price target on its shares. This implies potential upside of 8% for investors.
As for income, the broker is forecasting dividends per share of 65 cents in FY 2025 and then 69 cents in FY 2026. Based on the current Transurban share price of $13.55, this will mean yields of 4.8% and 5.1%, respectively.
