Forget term deposits and buy Coles (ASX:COL) and this ASX dividend share

Here’s why I think Coles Group Ltd (ASX:COL) and this ASX dividend share could be better than term deposits…
The post Forget term deposits and buy Coles (ASX:COL) and this ASX dividend share appeared first on Motley Fool Australia. –

Coles share price

If you’re tired of dealing with low interest rates on term deposits, then you might want to look to the share market.

The ASX is home to a good number of shares that are providing investors with vastly superior yields.

But which ASX dividend shares should you buy today? Two that I’m a big fan of are listed below:

Coles Group Ltd (ASX: COL)

The first ASX dividend share I would buy instead of a term deposit is this supermarket giant. Defensive qualities are very important for dividend shares and Coles has proven to have them in vast quantities. I think this makes it a great option in the current uncertain economic environment.

In addition to this, I’m a big fan of Coles for its strong market position and positive long term growth outlook. Combined with its refresh strategy, which is aiming to cut costs materially, I believe the company is well-placed to grow its earnings and dividend at a solid rate over the 2020s. For now, based on the current Coles share price, I estimate that its offer investors a fully franked ~3.2% FY 2021 dividend yield.

Telstra Corporation Ltd (ASX: TLS)

Another ASX dividend share which has defensive qualities is Telstra. These were on display in FY 2020 when the telco giant delivered on its guidance and maintained its dividend. And while FY 2021 will be a little bit harder because of the pandemic’s impact on roaming revenues, I believe a return to growth won’t be far away once the crisis passes. This is due to the company’s T22 strategy, the easing NBN headwind, and the arrival of 5G internet. I’m expecting the latter to support its average revenue per user metric in the all-important mobile business in the coming years.

In addition to this, I’m optimistic that Telstra can avoid a dividend cut on FY 2021 if its switches its dividend policy to a free cash flow-focus. This is because its free cash flow guidance this year would be more than sufficient to maintain a 16 cents per share dividend. If the company does make the switch, based on the current Telstra share price, it would offer investors a very generous 5.7% yield.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Forget term deposits and buy Coles (ASX:COL) and this ASX dividend share appeared first on Motley Fool Australia.

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