S&P/ASX 200 Index (ASX: XJO) shares can be a great source of passive income. Term deposits offer guaranteed income, but the payout does not grow. Therefore, Term deposits can't provide inflation protection for an income stream either.
An ASX 200 share can provide that golden trifecta of a good dividend yield, payout growth and capital growth.
There are a few ASX 200 shares that could be an excellent pick compared to a term deposit.
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APA Group (ASX: APA)
APA Group is an important business for the Australian economy because of its large energy asset base.
Its key asset is the gas pipeline network that transports half of the nation's gas usage. The business has recently announced a plan to expand its network to increase its gas capacity to transport more volume from the north of the country (supply) to the south (demand) which will comes with a cost of hundreds of millions of dollars, but could unlock stronger earnings.
The business also has gas storage, gas processing, gas-powered energy generation, wind farms, solar farms, batteries and electricity transmission.
APA's asset base allows it to generate defensive earnings each year, with a large majority of revenue growth linked to inflation.
As the cash flow grows, the ASX 200 share is able to fund a higher distribution for investors.
APA has grown its annual distribution every year for the past two decades, which is the second-best growth streak on the ASX.
It's expecting to grow its FY26 annual distribution by 1.75% to 58 cents per security. That translates into a potential distribution yield of 6.3%, noticeably better than a term deposit.
Centuria Industrial REIT (ASX: CIP)
The other business I want to highlight is this real estate investment trust (REIT), which focuses on industrial properties in important metropolitan areas.
It owns a few different types of industrial buildings: distribution centres, manufacturing and production, transport logistics, data centres and cold storage.
There are a number of positives that are providing income tailwinds including a growing population, increased e-commerce adoption, fresh food and pharmaceutical demand, increased data centre demand, onshoring of supply chains and limited supply of new industrial properties.
Those positive demands are helping drive the underlying rental income potential of the business. It reported that in the first half of FY26, it delivered 5.1% like for like net operating income (NOI) growth.
It's expecting to deliver funds from operations (FFO – rental earnings) per security of between 18.2 cents to 18.5 cents in FY26. That would be growth of up to 6% year-over-year.
The ASX 200 share expects to deliver accelerating earnings growth in the medium-term as its rental contracts reset to market rates rather than being 20% 'under-rented' on average.
Its net tangible assets (NTA) per unit is $3.95, so it's trading at a discount of around 20%, which is very appealing to me. It's like being able to buy a property portfolio at 20% less than it's actually worth.
On the distribution side of things, it's expecting to increase its annual distribution by 3% to 16.8 cents per security in FY26. That translates into a forward distribution yield of 5.3%. That's more appealing to me than a term deposit.
