S&P/ASX 300 Index (ASX: XKO) stock Rural Funds Group (ASX: RFF) is one ASX dividend share that I have in my portfolio for passive income.
I think it's a business worth investing in for the regular, attractive distributions that it pays.
While it doesn't pay a distribution every week, the ASX 300 stock pays income to investors every quarter. We just need to split that quarterly payment into weekly amounts.
For readers who haven't heard of Rural Funds, it's a real estate investment trust (REIT) that owns a portfolio of farmland across Australia. The business is invested in a number of different farm types including almonds, macadamias, vineyards, sugar, cotton, and cropping.
Passive income goal
The ASX dividend share has a goal of increasing its distribution by at least 4% per annum, which it has done since listing several years ago.
Let's assume for the sake of this article that the FY23 quarterly payment from the ASX 300 stock continues over the next 12 months.
In FY23, it's expecting to pay a total distribution of 12.2 cents, which is a gross payment of 3.05 cents per quarter.
To get $200 per week, we're essentially aiming for an annual target of $10,400. To reach that passive income goal, we're talking about owning 85,246 Rural Funds shares. Buying this many shares would currently come at a cost of around $168,000.
Is Rural Funds a good ASX dividend share?
I think it's one of the best REITs on the ASX. The 30% or so fall in the Rural Funds share price over the past year has pushed up the distribution yield to 6.2%.
It has 67 properties with quality tenants – around 80% of its forecast FY23 lease revenue is from corporate lessees. Those tenants are on long-term rental contracts, with the current weighted average lease expiry (WALE) being around 12 years. That's a long time for rent to be locked in.
Higher interest rates are hurting the rental profits of the business. But it's benefiting from CPI and fixed indexation of its rental income, as well as market rent review mechanisms.
The business also has a development and leasing pipeline, where productivity improvements and conversion to higher and better-use developments are expected to generate earnings growth in future years. For example, its 3,000-hectare development is forecast to be completed by FY25.
Higher interest rates may hurt the ASX 300 stock's farm values, but I think the Rural Funds share price decline has made up for that.
