With the Reserve Bank of Australia (RBA) cutting interest rates to an all-time low and the expectation of more cuts to come, I take a look at two ASX shares, Stockland Group (ASX: SGP) and Sydney Airport Ltd (ASX: SYD), which offer an alternative to cash in the bank.
In Australia the RBA is responsible for setting monetary policy. Essentially it does this via its ability to set short term interest rates or what is commonly referred to as the ‘cash rate’. Last month the RBA cut the cash rate to a new record low of 1.25%.
Since the GFC, a number of central banks around the world have taken drastic action cutting the cash rate to 0%. In the case of Japan and several European countries, the cash rate went negative. Whilst this is great news for those who wish to borrow in order to buy property it is horrible news for savers who not only receive no income on their savings but in fact must pay the bank to hold their money.
Interest Rates To Keep Falling
Many analysts are of the belief that the RBA will cut rates at least once more before Christmas and some, including AMP Limited’s (ASX: AMP) chief economist Shane Oliver, believe rates may be as low as 0.5% by the end of next year.
With interest on your bank savings declining it might be time to look to generate income in other ways. One of your best options is to invest in high-quality ASX shares that pay fully franked dividends.
Below I look at two ASX shares that offer investors a high dividend supported by mature companies with stable profits.
Sydney Airport
Sydney Airport Holdings Ltd (ASX: SYD) operates Sydney’s Kingsford Smith Airport on a 99-year lease set to expire in the year 2097. The company has been able to consistently increase dividends year after year as growing passenger numbers has supported a steady upward trajectory in profits. With moderate growth expected in the medium term the 4.8% dividend yield looks very attractive given the quality nature of the assets.
The Sydney Airport share price may also benefit from each and every interest rate cut from here as retirees are increasingly driven out of savings accounts and into the more attractive options available in the share market.
Stockland
Stockland Corporation Ltd (ASX: SGP) was founded in 1952 and is one of Australia’s largest property developers with projects including housing estates, shopping centres and retirement villages.
Stockland offers investors a well-diversified portfolio of high-quality property assets. The company would be a direct beneficiary of lower interest rates which would serve to prop up the sputtering property market.
With a juicy fully franked dividend of 6.5%, Stockland looks very tempting for income-hungry investors.
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Disclosure: At the time of publishing, Luke has no financial interest in any companies mentioned.
