Income-seeking investors are biting the bullet and getting back into high-dividend shares as bank deposit rates languish at low levels.

Mark Lister, head of research at Craigs Investment Partners said pressure had been on investors since the official cash rate began dropping but many had held out in the hope it would rise again, pushing bank deposit rates up.

But the OCR has stayed low and investors have been faced with maximum interest of 4.5 per cent for bank on-call accounts and about 6 per cent per annum if they lock their money up for five years in a term deposit.

Lister said once tax and fees were taken into account the interest was barely able to keep up with the rising costs of living.


"Four or five years ago 8 per cent in the bank was a pretty easy way to go but that 8 per cent has turned into 4 per cent."

That was like taking a 50 per cent pay cut for some investors, Lister said.

"Interest rates have been low for a while ... people have been faced with a pretty tough choice.

"Four per cent is not much when you take off tax and bank fees. People can either deal with it or think outside the square."

Lister said for those who were prepared to increase their investment risk New Zealand shares paid good dividends and the strength of corporate balance sheets meant they were likely to increase over the next few years as business picked up.

Lister said investor interest in shares had built as some people had received money back from maturing securities and others had finally come to the realisation that bank rates were not likely to shoot back up.

"Interest in the markets has also increased in the last few months because the market has been doing well. Confidence breeds confidence."

Lister said the strong interest in dividend-paying stocks was noticeable with investors piling into companies such as Telecom and Vector.

Telecom's share price has shot up from $2.07 at the start of the year to more than $2.50.

Vector's share price has risen from $2.47 to more than $2.65.

Craigs Investment Partners estimates Telecom's dividend will be equivalent to 10 per cent this year before tax.

While Vector is expected to pay 7.9 per cent and Trustpower, 7.3 per cent.

Macquarie Private Wealth's head of research Riccardo Briganti said it too had noticed strong interest in high-dividend paying stocks.

"When the choice is putting money in a term deposit and getting three to four per cent - that was good when things were uncertain but is not looking so attractive now."

But he said investors also needed to be cautious about which stocks they picked.

"It becomes very stock specific because of the environment we are in."

John Hawkins, Shareholders Association chairman, said anecdotal evidence pointed to people feeling a little more confident following the tightening of regulations.

"I think our members are investing, but cautiously.

"Certainly people with quite a bit of money in bonds are getting interested in the sharemarket."

Hawkins said some investors were also beginning to free up money in preparation for the SOE floats, the first of which is expected in the latter half of this year.

Estimated annual return on investment from dividends this year (before tax)
Telecom - 10%
Chorus - 10%
Vector - 7.9%
Trustpower - 7.3%
Ebos - 6.9%
Contact - 6.5%
Figures supplied by Craigs Investment Partners
Annual return (before tax)
Bank on-call savings account - 4.5%
Bank term deposit fixed for 1 year - 4.6%
Bank term deposit fixed for 5 years - 6%
Based on interest rate comparisons on