Rural Funds Group (ASX: RFF) is a really good ASX dividend share to consider for an income portfolio.
It's one of the few real estate investment trusts (REITs) that isn't focused on retail, office or warehouses.
Here's why Rural Funds is a really good ASX dividend share
Diversification
Rural Funds has a diverse portfolio of a few different farming sectors. They are: almonds, macadamias, cattle, vineyards and cropping (cotton and sugar). It has a total of 67 properties in its portfolio.
Being spread across different sectors lowers the risk if any particular sector goes through long-term problems. However, it's important to note that it's the tenants that carry the operational risk of the farming. Rural Funds also owns substantial water entitlements for tenants to use. That can be particularly useful during drier periods, such as what has happened over the last few years.
The farms are also diversified when it comes to the location of the properties. They are spread across different states and climactic conditions.
It has a long weighted average lease expiry (WALE) of 11.1 years, which is one of the longest in the REIT space.
Growth expectations
The ASX dividend share doesn't just have a diverse portfolio. It also provides growth.
Management have a goal of growing the distribution by 4% each year. This is comfortably more than long-term inflation. It has been successful with this goal since it started paying a distribution several years ago.
That distribution growth is funded by annual rental increases at the farms. Those increases are funded by a fixed 2.5% rental indexation at some farms, whilst others are linked to CPI inflation, plus market reviews.
Rural Funds is also able to grow its distribution thanks to investments at the farms. It keeps some of its rental profit back each year to re-invest into those farms to make them more productive and efficient for the benefit of tenants.
Acquisitions and divestments
The ASX dividend share is happy to make acquisitions or divestments to improve the portfolio.
For example, it used to have a segment of poultry assets. But it divested those assets.
Rural Funds occasionally makes acquisitions to diversify the portfolio. Cattle has been a focus for acquisitions in recent years, which offers a good combination of income and growth.
What's the Rural Funds yield?
Rural Funds recently announced the FY22 distribution guidance of 11.73 cents per unit. That translates to a forward distribution yield of 5%.
In the FY21 half-year result, Rural Funds said that its adjusted net asset value (NAV) per unit increased by 4% to $2.01. This compares to the current Rural Funds share price of $2.37.
