Why I think these are 2 of the best income shares on the ASX

National Storage REIT (ASX:NSR) and Rural Funds Group (ASX:RFF) could be 2 of the best income stocks during FY17.

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You don't need to own a residential investment property to benefit from property. Some of the best performing stocks on the ASX over the last few years have been real estate investment trusts (REITs).

REITs own property and distribute most of the net rental after expenses to shareholders. Some of the most well known ones are Scentre Group (ASX: SCG), Westfield Corp Ltd (ASX: WFD) and DEXUS Property Group (ASX: DXS).

REITs can provide a good source of income whilst also having the potential to grow in value long term too. I think these two REITs are two of the best on the ASX:

National Storage REIT (ASX: NSR)

National Storage is a self-storage provider with a market capitalisation of $762 million. It is the market leader of self-storage in Australia and has 108 centres across Australia and New Zealand.

Even though Australians have, on average, the largest houses in the world, there is a booming market for self-storage and is likely to keep growing. In financial year 2016 (FY16) it grew underlying earnings by 20% and is forecast to grow by a further 5.7% to 8% in FY17.

The major risk to National Storage would be competitors and an oversupply in the market, so investors should monitor the rental price achieved and the occupancy rate.

It's trading with a dividend yield of 6.04% and is trading at a forecast 15.8x to 16.2x FY17's estimated earnings.

Rural Funds Group (ASX: RFF)

Rural Funds Group is a fairly small REIT with a market capitalisation of $362 million. It's the only listed farmland REIT with vineyards leased to Treasury Wine Estates Ltd (ASX: TWE) and almond farms leased to Select Harvests Limited (ASX: SHV).

Its portfolio of farms is well diversified by climate and geography, which is a good way of mitigating risk. It also owns a large amount of water rights which provides water security to the tenant, making the asset more appealing.

Rural Funds Group provides a consistent source of income as it pays quarterly and is forecast to grow its dividend by 4% in FY18, which is decent growth after growing 8% in FY17.

Rural Funds Group is trading with a dividend yield of 5.32% and a forward yield of 5.52% for FY17.

Foolish takeaway

I think both of these REITs would make reliable long term investments for any portfolio, but out of the two I prefer Rural Farm Funds.

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Select Harvests Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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