Term deposits aren't as attractive to me with the RBA official cash rate reducing. The interest rate has already been cut twice in 2025, and there are expectations there could be further cuts over the next 12 months, reducing potential returns from term deposits. S&P/ASX 200 Index (ASX: XJO) shares seem like more appealing investments to me.
If there are more cuts, it could boost certain businesses that are more exposed to interest rates than others. Some of these names can provide investors with pleasing dividend income thanks to their solid yields.
Let's take a look at two businesses that I think are buys.
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Pinnacle Investment Management Group Ltd (ASX: PNI)
Pinnacle is an investment business that takes a stake in (relatively) new funds management businesses. The company helps the fund manager out with a number of services including seed funds under management (FUM) and working capital, distribution and client services, middle office and fund administration, compliance, finance, legal, technology and other infrastructure. This allows the investors to focus on investing.
The ASX 200 share has built an impressive portfolio of fund managers that are focused on different asset classes and located across different countries such as Australia, Canada, the UK and the US.
Some of the fund managers are Hyperion, Plato, Solaris, Spheria, Firetrail, Metrics, Langdon, Antipodes and Coolabah Capital.
The business is benefiting from the ongoing growth of the FUM of these businesses thanks to both the investment returns and the net inflows that the group of fund managers are experiencing. In the FY25 half-year result, aggregate FUM increased 15.7% excluding FUM growth through acquisitions, or 41.1% including acquisitions, to $155.4 billion. I think further RBA rate cuts can help boost the FUM from valuation increases and encourage clients to allocate new money.
This growth helped the ASX 200 share grow its FY25 interim dividend by 112% to 15.6 cents per share.
The forecast on Commsec suggests the business could pay an annual dividend per share of 65.7 cents, which translates into a grossed-up dividend yield of 4.5%, including franking credits.
Charter Hall Social Infrastructure REIT (ASX: CQE)
This is a real estate investment trust (REIT) that is invested across a number of sectors including childcare, life sciences and healthcare, emergency services, transport and higher education.
I find this appealing because it can provide consistent rental earnings and pay a distribution.
It has an impressive portfolio with a long weighted average lease expiry of 11.9 years and an occupancy rate of 100%. The ASX 200 share is benefiting from regular rental income growth, with market reviews helping.
Rate cuts could help the business in a number of number of ways, including a boost to rental income because of lower interest costs, as well as a being a tailwind for the property valuations.
Its FY25 distribution was guided at 15.2 cents per unit, translating into a distribution yield of 5.3%.
