Following a third consecutive interest rate rise this month, people were likely already thinking about investment yields a bit more.
Then came the federal budget, and details of proposed changes to the capital gains tax (CGT).
People already knew the Federal Government was considering CGT changes for property investments to improve housing affordability.
What they didn't expect was CGT changes on all asset classes, including ASX shares and businesses.
That changes the game, according to some experts.
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CGT changes magnify importance of yield
Some experts reckon higher taxes on capital gains will likely amplify the appeal of yield over growth for some investors.
Private wealth and investment advisory firm, Medallion Financial Group, said:
At a high level, the changes tilt the playing field toward yield. If a larger portion of capital gains is taxed away, the after-tax return profile of growth assets; equities, start-ups, and expansionary investments becomes less compelling.
This might enhance the appeal of ASX dividend shares, or exchange-traded funds (ETFs) tracking the S&P/ASX 200 Index (ASX: XJO).
ASX dividend shares deliver a much higher yield than international shares, but they aren't what they used to be.
Historically, income investors have relied on ASX 200 bank and mining shares to deliver generous dividend yields.
But the average dividend yield for the ASX 200 has fallen below 3.5%.
And this may start looking a little weak to income investors, given risk-free savings deposit rates have now risen above 5.5%.
Savings deposit interest rates
Savings deposit rates are not only attractive now, they're likely to go even higher given expectations of further rate rises this year.
Some examples in the market today include a 5.75% ongoing but conditional savings rate offered by Westpac Banking Corp (ASX: WBC) to customers aged 18 to 34 via its Westpac Life product.
ING offers a 5.5% ongoing but conditional rate via its Savings Maximiser product.
These are not short-term intro savings rates that last only a few months.
They are ongoing, everyday interest rates that apply as long as you meet certain conditions every month, such as increasing your balance by a certain amount.
Those yields are certainly appealing, but here's the thing.
If you're a long-term investor, you are still likely to do better with ASX dividend shares over savings, even if you pay a bit more CGT.
This is because ASX dividend shares offer both capital growth and yield.
Savings accounts just deliver yield (which inflation then eats into as well).
So, remaining invested in assets that also deliver reliable growth over the long term is protective.
The following chart shows the current trailing dividend yields of the top 10 ASX 200 shares by market capitalisation.
As you can see, some stocks have dividend yields above today's savings deposit rates, while some are below.
And nine out of 10 have delivered solid average annual capital growth over the past five years.
Even if you pay more tax on gains in the future, growth plus yield still looks to be a compelling combination, depending on your goals.
Food for thought.
Top 10 ASX 200 shares: Dividend yields and capital growth
| Company | Trailing dividend yield | Gross yield (incl franking) | Average annual capital gain over 5 years |
| BHP Group Ltd (ASX: BHP) | 3.31% | 4.73% | 8% |
| Commonwealth Bank of Australia (ASX: CBA) | 3.02% | 4.31% | 12.8% |
| Westpac Banking Corporation (ASX: WBC) | 4.24% | 6.06% | 7.8% |
| National Australia Bank Ltd (ASX: NAB) | 4.51% | 6.45% | 8% |
| ANZ Group Holdings Ltd (ASX: ANZ) | 4.7% | 6.16% | 5% |
| Macquarie Group Ltd (ASX: MQG) | 2.91% | 3.35% | 10.6% |
| Wesfarmers Ltd (ASX: WES) | 3.38% | 4.84% | 7.8% |
| Rio Tinto Ltd (ASX: RIO) | 3.24% | 4.63% | 10.8% |
| Fortescue Ltd (ASX: FMG) | 5.62% | 8.02% | -0.3% |
| Goodman Group (ASX: GMG) | 0.97% | 0.97% | 10.8% |
