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Rural Funds Group acquires a $15.7 million cattle farm, is it a buy for income investors?

Rural Funds Group (ASX: RFF) announced this morning that it is acquiring another cattle farm to add to its existing portfolio.

Rural Funds is a real estate investment trust (REIT) that purely invests in agricultural properties. It currently has a diverse portfolio of farms like cattle, poultry, cotton, almonds, macadamias and vineyards.

The REIT has entered into a contract to buy Comanche, a 7,600 hectare cattle property located in central Queensland for $15.7 million. This purchase will be funded by debt, it has access to $50 million in funding above the current facility limit of $275 million. The settlement is expected in July 2018.

Rural Funds is interested in this cattle property because it offers opportunities for productivity enhancements, similar to a cattle property it bought in July 2016.

The manager for Rural Funds, Rural Funds Management Limited, is well advanced in the process of arranging a tenant and will tell the market when this has been achieved.

The ASX announcement said that this acquisition supports the strategy of acquiring assets where productivity can be improved, with consequent increases in capital value and rental income.

This acquisition should help Rural Funds continue with its aim of increasing the distribution by 4% each year.

Foolish takeaway

Rural Funds has been an excellent investment for income seekers with strong share price growth, a decent yield and a growing distribution. It currently offers a distribution yield of 5%.

The share price has come back a bit in recent weeks, but it’s still trading at a sizeable premium to the adjusted net asset value per share. I wouldn’t call it a value buy at the moment, but it will likely be a good option for income investors at this level.

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. 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.

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