It's no secret that ASX investors who buy shares enjoy receiving cash returns on their investments in the form of dividends. The ASX is famous for its passive income prowess, boosted by our unique system of franking. That's why you tend to get a far higher dividend yield on an ASX index fund than an American one, for example.
As it happens, there could be a once-in-a-decade passive income opportunity on the ASX right now in an oft-overlooked corner of the share market.
What's in a REIT?
I'm talking about real estate investment trusts (REITs). REITs are a unique investment on the ASX, thanks to a number of distinguishing features. As its name implies, a REIT is a trust that solely invests in property. Not just houses though. The property a REIT can own could be residential, industrial or commercial in nature.
A prominent example of a REIT is Scentre Group (ASX: SCG). If you've ever visited a Westfield shopping centre in Australia or New Zealand, you've visited a Scentre property.
Because it is a trust and not a company, a REIT has different tax treatments regarding dividends and ownership. But they can be especially lucrative to own for passive income investors nonetheless.
REITs have been around for a very long time. So why would these investments be a once-in-a-decade opportunity right now? Well, it comes down to interest rates.
As interest rates rise, investing in property becomes less attractive, thanks to the rising cost of maintaining a loan on a property. And interest rates today happen to be at a decade high.
Although we haven't quite seen high rates hit the residential housing property markets in Australia, the value of other property has been under pressure over the past year or so. That explains why we've seen the S&P/ASX 200 A-REIT Index (ASX: XPJ) fall more than 22% since the start of 2022.
REITs offer unprecedented passive income for ASX dividend investors
But here's the thing. Some REITs can offer higher quality assets and returns than others. So this across-the-board decline that we've seen in the REIT space has resulted in some mighty dividend distribution yields on offer at present.
Take Westfield-owner Scentre Group. Its share price has fallen by 15% since the start of 2022, pushing its trailing dividend distribution yield to 5.92% (as of yesterday's market close). That's despite Scentre increasing its raw dividend distributions every year since 2020.
The Charter Hall Long WALE REIT (ASX: CLW) is another one to watch. This REIT owns properties with exceptionally long leases. These include supermarket distribution centres, government offices and pubs. It's lost around 20% of its value since the start of 2022 and offers a trailing dividend distribution yield of 6.97% today.
Rural Funds Group (ASX: RFF), an agricultural REIT that specialises in owning farmland, is another investment shunned by the markets in recent times. But it has still been steadily raising its payouts in recent years and currently has a trailing yield of 6.66% (perhaps not the best buying point for the superstitious investor).
So there is certainly a lot of passive income on the table when it comes to ASX REITs right now. We might just have a once-in-a-decade opportunity here for income investors to think about.
