At present, Commonwealth Bank of Australia (ASX: CBA) is offering 12-month term deposit rates of 3.6% per annum.
However, with the Reserve Bank of Australia (RBA) tipped to cut the cash rate a further three times this year, it would not be surprising to see this rate drop below 3% by the end of the year.
While 3% is better than nothing, income investors can get significantly more bang for their buck in the share market from ASX dividend shares.
But which ones could be good alternatives to term deposits? Let's take a look at two that analysts rate as buys:
Rate cuts should be good for this buy-rated ASX dividend share. That's because as a leading, national developer of residential communities and commercial properties, lower mortgage rates should be a boost to its sales.
Bell Potter expects this to be the case and is forecasting strong earnings growth in the near term. And given its attractive valuation and Australia's chronic housing shortage, it thinks that this makes it a great time to buy. It explains:
CWP has a 35-year track record of delivering earnings and a proven management team. CWP has a substantial pipeline of residential projects amidst Australia's extreme housing shortage, record presales, and positive forward commentary from a historically conservative management team. We are attracted to the current valuation – trading below NTA (versus a long-term average premium of +30%) and at a forward PE of 10x, which undervalues its double-digit growth profile.
As for that all-important income, the broker is forecasting dividends of 28 cents per share in FY 2025 and then 32 cents per share in FY 2026. Based on its current share price of $6.71, this equates to dividend yields of 4.2% and 4.8%, respectively.
Bell Potter has a buy rating and $7.30 price target on its shares.
Another good alternative to term deposits could be Australia's largest telco operator, Telstra.
Macquarie thinks it is an ASX dividend share to buy. This is due partly to its new Connected Future 30 strategy, which it thinks will be a positive. It said:
Multiple cost-out levers & an ability to sustain mobile ARPUs. Despite execution risks from software-defined networking, ROIC growth and focus on the core competitive advantage in network and connectivity signals operating leverage and momentum.
In respect to dividends, it is forecasting fully franked payouts of 19.9 cents per share in FY 2025 and then 22 cents per share in FY 2026. Based on its current share price of $4.89, this equates to dividend yields of 4.1% and 4.5%, respectively.
Macquarie has an outperform rating and $5.28 price target on its shares.
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