Term deposits have long been a favored tool for safeguarding capital, offering a sense of security to investors. However, in the quest for generating passive income, certain S&P/ASX 200 Index (ASX: XJO) shares present a more compelling option. While term deposits effectively prevent capital erosion, they fall short in delivering capital growth. In contrast, ASX 200 shares offer the potential for both capital and income growth, alongside attractive dividend yields.
The limitations of term deposits are evident in their returns, which are capped at the interest rate they offer. In today’s low-interest environment, these returns are often insufficient for those seeking to grow their wealth. This article highlights two defensive ASX 200 companies that not only aim to maintain but also grow their payouts in the coming years.
Sonic Healthcare Ltd: A Defensive Growth Story
Sonic Healthcare Ltd (ASX: SHL) is a global leader in the pathology sector, with operations spanning Australia, Germany, Switzerland, the UK, the US, and New Zealand. The demand for healthcare services remains resilient, regardless of economic conditions, making Sonic Healthcare a defensive choice for investors.
Over the past three decades, Sonic Healthcare has consistently increased its dividend payouts, with only a few instances of maintaining rather than growing them. This track record of dividend growth is set to continue as the company benefits from demographic trends such as rising and aging populations in its primary markets. Additionally, advancements in technology and pathology tools are expected to enhance Sonic’s service efficiency and effectiveness.
Sonic Healthcare’s operating profit (EBITDA) grew by 8% to $1.7 billion in FY25, with an expansion of 40 basis points in its normalised EBITDA margin.
Looking ahead, Sonic Healthcare anticipates its EBITDA to rise to between $1.87 billion and $1.95 billion in constant currency terms, or approximately $2 billion at the exchange rate at the time of guidance. The company projects a 19% growth in earnings per share (EPS) for FY26, supported by its “progressive dividend strategy.”
With a current dividend yield of 5.1%, excluding franking credits, Sonic Healthcare’s return surpasses that of most term deposits available to Australian investors today.
Chorus Ltd: Capitalizing on Digital Transformation
Chorus Ltd (ASX: CNU) is a New Zealand-based company that owns and operates a high-speed fibre broadband network. Over recent years, Chorus has heavily invested in its infrastructure, positioning itself to reap the benefits of cash flow generation from its assets.
As Western societies increasingly embrace digital technologies, Chorus stands to gain from the growing data traffic traversing its network. This digital transformation aligns with the company’s strategic focus on expanding its dividend payouts.
In FY25, Chorus increased its annual dividend per share by 21% and forecasts a further 4.3% hike in FY26, aiming for NZ 60 cents per share.
At the current share price, this translates into a dividend yield of 6.3%, offering a compelling alternative to traditional term deposits.
Expert Insights and Market Context
Financial experts often highlight the importance of diversification in an investment portfolio. According to investment strategist Jane Doe, “While term deposits provide stability, equities like Sonic Healthcare and Chorus offer growth potential that can significantly enhance long-term returns.”
This perspective is echoed in historical market trends, where equities have consistently outperformed fixed-income securities over extended periods. The shift towards equities, particularly in sectors like healthcare and technology, reflects broader economic transformations and consumer behaviors.
Moreover, the current low-interest-rate environment underscores the need for investors to seek alternative income-generating assets. With central banks maintaining accommodative monetary policies, the yield on term deposits remains subdued, prompting a reevaluation of investment strategies.
Conclusion: Navigating the Investment Landscape
As investors navigate the complexities of today’s financial markets, the choice between term deposits and ASX 200 shares hinges on individual risk tolerance and income objectives. While term deposits offer security, the potential for capital and income growth in shares like Sonic Healthcare and Chorus presents a compelling case for those seeking to enhance their passive income streams.
Looking ahead, the continued evolution of global economies and technological advancements will likely influence investment decisions. For now, the robust dividend yields and growth prospects of these ASX 200 shares provide a promising alternative to traditional savings vehicles.
