Savings products from banks look much more appealing these days after five rate rises from the Reserve Bank of Australia (RBA), taking the cash rate to 4.85%. While term deposit rates are higher npw, I think ASX dividend shares are still the winner for passive income.
When I look at offerings from banks like Commonwealth Bank of Australia (ASX: CBA) and Judo Capital Holdings Ltd (ASX: JDO), they have 12-month term deposit rates in the mid-5% range.
To compete with that sort of interest rate, I think investors should look at ASX dividend shares that provide a good yield and are delivering payout growth. It's the organic income growth that makes me prefer ASX dividend shares over term deposits.
If I spend all of my interest income in a year, I'm left with the original capital amount.
If I spend all of my dividends, I could still see a dividend increase in the following year.
With that in mind, I like the following businesses for the investment exposure and the payout growth they're delivering.
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Centuria Industrial REIT (ASX: CIP)
Industrial property seems like one of the best places to invest in the real estate world considering a number of tailwinds are boosting the rental potential.
Demand drivers like e-commerce adoption, refrigerated warehouses (for food and medicine), growing city populations and the onshoring of supply chains are all helping drive the rental income.
In the FY26 result, which was reported in August, the business reported that it achieved 5.2% like-for-like net operating income (NOI) growth.
The business thinks it could grow its funds from operations (FFO) by up to 5.5% in FY27. Management believe its portfolio is 17% under-rented on average, which suggests there could be significant rental growth in the next few years as leases come up for renewal.
At the end of FY26, it had a weighted average lease expiry (WALE) of around seven years, which is a lot of rent already locked-in thanks to those multi-year leases.
It expects to grow its FY27 annual distribution by 3% to 17.3 cents per unit. That translates into a forward distribution yield of 5.9%, at the time of writing.
L1 Long Short Fund Ltd (ASX: LSF)
The other ASX dividend share I want to highlight is this listed investment company (LIC) which invests in a variety of ASX shares and international shares to generate returns. It's also able to short stocks if it thinks they're overvalued, so it can make money if they go down.
The LIC has not relied on technology shares to produce its impressive returns. Instead, it has looked at cyclical and unloved sectors to generate returns. The sectors that have produced the most returns for the portfolio are: materials, industrials, communication services, utilities and financials.
Past performance is not a reliable indicator of course, but over the seven years to October 2026 its portfolio has generated an average return per year of 19.4%. according to its monthly update for October.
Time will tell what the future returns are, but the historical returns have been enough for the business to pay rising dividends and still see good growth of its portfolio's value over time.
As an indicator, over the past five years, the L1 Long Short fund Ltd share price has risen 50% and it has hiked its dividend for the second-half of the financial year per share by 157%. It recently changed to quarterly payments, so I'm using two quarterly dividends for the FY26 second half comparison.
I expect the next four quarterly dividend payments will come to 16.2 cents per share, translating into a forward grossed-up dividend yield of 5%, including franking credits at the time of writing.
