S&P/ASX 200 Index (ASX: XJO) shares are one of the best places for Australians to invest their money if they want both passive income and potential capital growth. These days, ASX dividend shares are increasingly appealing compared to term deposits.
Every time the Reserve Bank of Australia (RBA) reduces the cash (interest) rate, it cuts into the interest rate offered by new term deposits, making them less appealing. They're still useful for protecting capital, but if investors are trying to generate adequate passive income, I believe there are better places to invest.
I'd select businesses that generate resilient earnings and have a strong history of paying attractive passive income to investors.
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Charter Hall Long WALE REIT (ASX: CLW)
This is a real estate investment trust (REIT) that owns a diversified portfolio of properties across Australia. I like the diversification of its asset base across geography and types of properties.
Its portfolio includes pubs and hotels, government-related buildings, data centres and telecommunications, service stations, grocery and distribution, food manufacturing, waste and recycling management, Bunnings properties, and more.
One of the most appealing aspects of this ASX 200 share is how long the tenants are signed on for. As of 30 June 2025, the average lease was 9.3 years, providing significant long-term income security for investors.
Rate cuts are actually a benefit for the business because they're likely to increase the value of the properties.
It pays a quarterly distribution, which is pleasingly regular. It expects to pay a distribution of 25.5 cents per security in FY26 (2% higher than FY25), translating into a distribution yield of around 6%.
Telstra Group Ltd (ASX: TLS)
Telstra is Australia's leading telecommunications business, playing a vital role in how people communicate, learn, work, are entertained, and so on. The country is becoming increasingly technological, which is a long-term tailwind for demand for Telstra's services.
These days, having an internet connection seems a very important utility for most households and businesses, so I'd describe it as having very defensive earnings.
Telstra has invested heavily in its 5G network, positioning it ahead of competitors and giving it a stronger appeal to potential subscribers. Having more users allows the ASX 200 share to split the costs of the network across more people, giving Telstra stronger operating leverage and boosting the profit margins.
In FY25, it hiked its annual dividend payout by 5.6% to 19 cents per share, representing a grossed-up dividend yield of 5.6%, including franking credits.
I'm expecting the business to increase its annual payout to at least 19.5 cents per share in FY26, which would translate into a grossed-up dividend yield of 5.75%.
