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Why this stock is retiree’s dream ASX share for income

I think that Rural Funds Group (ASX: RFF) is a dream share for retirees for income.  

About Rural Funds Group

Rural Funds is a real estate investment trust (REIT) which owns farmland. It owns a variety of different farm types including almonds, cattle, vineyards, cotton and macadamias.

Those farms are spread across several Australian states in different climactic conditions.

Why it’s a dream retiree share for income

Distribution yield

Rural Funds may offer one of the best yields for a reliable distribution. The REIT has already provided distribution guidance for FY21 of 11.28 cents per unit. This translates to a forward distribution yield of 5.9%. I think this is a very solid yield as a retiree share considering what term deposits offer these days.

Another benefit of Rural Funds is that it offers quarterly distributions. This is attractive as it provides more regular income than something that pays half-yearly.

Income growth

Rural Funds aims to increase its distribution by 4% per annum. It has been successful with this goal since it started paying one several years ago. That’s attractive income growth from a share for retirees.

It’s able to do this because rental growth is built into all of its contracts with its high-quality tenants. That growth is either a fixed 2.5% increase or it’s linked to CPI inflation, plus market reviews.

Management aim to re-invest the 20% of rental profit that’s not paid out as distributions into productivity improvements at the farms, which increases the income potential further.

Diversification

I believe diversification is important with retiree shares. Either diversification within the investment, or you should buy a range of shares to create diversification. Rural Funds’ portfolio of diverse farms means it’s less at risk from any individual farming sector.

The wide array of farm types that management can potentially acquire also means the REIT can look at many more potential acquisition opportunities.

Long-term

Farms have been useful investments for many hundreds of years. I don’t think that’s going to change any time soon, particularly as the human population continues to grow and some global farmland is degrading.

Looking at Rural Funds itself, it has a weighted average lease expiry (WALE) of over 10 years, meaning its rental income is locked in for a very long time.

Foolish takeaway

I think Rural Funds is one of the best retiree share options for income. It has a solid starting yield, offers inflation-beating growth and is very different to the typical ASX bank or resource share. Useful in these coronavirus times. It’s not trading at a cheap price, but I wouldn’t mind buying a parcel of shares today.

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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.