Interest rate cuts have been the talk of the investing town, particularly for those who own ASX dividend shares, over the past few months. This year, we have seen rate cuts from central banks as diverse as the Bank of England, the Bank of Canada and the Reserve Bank of New Zealand. Capping it off was the blockbuster 'double cut' that the US Federal Reserve announced earlier this month.
Yet, our own Reserve Bank of Australia (RBA) has kept interest rates at their decade-highs. Just this week, the RBA announced that Australians would not be treated to a rate cut this September. Instead, it opted to keep the cash rate steady at 4.35%, the same level that the Australian economy has been dealing with for almost a year now.
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RBA cut on the horizon?
However, high interest rates have not been bad news for everyone. Many Australians, particularly retirees, have benefitted from the higher interest rates now being offered by cash investments like term deposits and savings accounts.
Three years ago, it was hard to find a term deposit with an interest rate above 1%. Today, you can find one with a rate of 5%.
Sure, the RBA has stayed its hand over 2024 so far. But even so, some experts believe it is a matter of 'when', not 'if', Australians will see a rate cut.
According to a report in The Age this week, the markets are still putting in an 80% chance that the RBA will cut interest rates before the end of the year. When it comes to the big banks, expectations range from a rate cut in December to a cut by May 2025.
If rates do start coming down, it will bring mortgage and loan relief to many Australians. But it will also mean that cash investments will become less lucrative.
So if you're worried about falling interest rates on your savings, why not consider an investment in ASX dividend shares instead?
The ASX dividend shares to invest in if interest rates fall
Inherently, dividends aren't as reliable as a cash investment. There's nothing stopping a dividend share from slashing its shareholder payouts compared to past income. However, there are still many ASX dividend shares on our market that I think offer fairly stable and predictable income potential.
I would start by looking at sectors that typically don't see cyclical demand for goods and services. Consumer staples and communications spring to mind here. We all need to eat, drink and stock our households with life essentials, regardless of the economic weather.
That's why I think Coles Group Ltd (ASX: COL) is a good place to start. Coles is an ASX dividend share that hasn't cut its annual payouts once since its 2018 listing. This stock is currently offering a dividend yield of 3.76%, which usually comes with full franking credits attached too.
In our modern world, internet access is arguably one of life's essentials. That's why I think the ASX's leading telco Telstra Group Ltd (ASX: TLS) is also a great ASX dividend share to turn to for income. Telstra hasn't cut its dividend for many years now, and currently trades on a fully-franked 4.6% yield.
Toll road operator Transurban Group (ASX: TCL) is another reliable income stock in my view. This company has an enviable lock on many of the most important aerial routes across our major cities.
Traffic volumes tend to be very stable, lending Transurban a reliable stream of inflation-linked income, which it tends to faithfully pass on in dividends. This ASX dividend share is presently trading on a 4.69% yield.
