1 ASX dividend stock down over 34% to buy right now

We can farm good passive income from this stock.

| More on:
An Australian farmer wearing a beaten-up akubra hat and work shirt leans on a fence with livestock in the background and a blue sky above.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX dividend stock Rural Funds Group (ASX: RFF) is down heavily from its peak. The Rural Funds share price has dropped 34% from the end of 2021.

If you don't know what this business is, it's a real estate investment trust (REIT) that owns a farmland portfolio across a number of different sectors including cattle, almonds, macadamias, vineyards and cropping.

Most of the ASX dividend stock's properties are located in Queensland and NSW, but it also has a few farms in Victoria, South Australia and Western Australia.

There are two main reasons why I think it's a great buy today.

Lower share price

A share price does not tell us exactly how much a business is actually worth. It's the market giving a rough estimation – sometimes that guess is a long way off the real underlying value, sometimes it's too optimistic and sometimes too pessimistic.

In each report, Rural Funds tells the market what its adjusted net asset value (NAV) is – that's the value of the assets (including the farms) minus the liabilities (such as debt). The adjusted NAV recognises the value of the water entitlements at their market (sellable) value rather than the balance sheet value.

At the end of December 2023, the Rural Funds' adjusted NAV was $3.07, which was an increase of 4.8% for HY24 – the ASX dividend stock benefited from (independently) revalued assets, primarily in cattle and macadamia.

The current Rural Funds share price is at a 32% discount to that adjusted NAV. We'd only know what the true NAV is if Rural Funds decided to sell all of its properties, but I think there is a potential appealing discount here, particularly with potential interest rate cuts getting closer.  

The lower Rural Funds share price has also led to a higher distribution yield. It is expecting to pay a distribution of 11.73 cents per unit in FY24, which is a forward yield of 5.6%.

Rental income growth

The current yield is one thing, but I'm also hoping it can return to distribution growth in the longer term.

There is a lot of rental growth built into its various contracts, with most having either a fixed annual rental increase, or inflation-linked increases, plus a market review.

Rural Funds also regularly invests in its farms to increase productivity, rental potential and capital value, which is good for investors.

While debt does cost more, the rental income growth can help offset this. Thankfully, a lot of Rural Funds' debt is hedged at an interest rate of less than 3% for the next couple of years.

With a weighted average lease expiry (WALE) of more than 12 years, the ASX dividend stock has a lot of rent already locked in.

Motley Fool contributor Tristan Harrison has positions in Rural Funds Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Rural Funds Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Beautiful young couple enjoying in shopping, symbolising passive income.
Dividend Investing

2 ASX dividend stocks with yields over 7% to buy today

It looks rewarding to own these shares with generous dividends.

Read more »

Two colleagues at work looking at a tablet and smiling at a rising share price.
Dividend Investing

These high-yield ASX dividend stocks can rise 15% to 20%

Big returns could be on offer with these income options according to analysts.

Read more »

Five happy friends on their phones.
Dividend Investing

Buy Telstra and these ASX dividend shares next week

Analysts think these could be great income options for investors.

Read more »

Australian dollar notes inside the pocket on jeans, symbolising dividends.
Dividend Investing

How I would generate $20,000 of passive income from ASX shares each year

Here's how I would generate huge pay checks from the share market.

Read more »

Three generations of male family members enjoy the company as they plan future financial goals together on a trek outdoors.
Dividend Investing

3 'forever' ASX dividend shares to build your wealth

I think you can happily buy these three stocks to hold for your entire life today.

Read more »

A businessman holds a bolt of energy in both hands, indicating a share price rise in ASX energy companies
Dividend Investing

Does a 6.5% yield with relative stability sound good? Consider this ASX energy giant

This stock looks like a compelling choice for resilient income.

Read more »

Four young friends on a road trip smile and laugh as they sit on roof of their car.
Dividend Investing

Top ASX dividend shares to buy in April 2024

Winners are grinners!

Read more »

Woman customer and grocery shopping cart in supermarket store, retail outlet or mall shop. Female shopper pushing trolley in shelf aisle to buy discount groceries, sale goods and brand offers.
Dividend Investing

2 ASX dividend shares to beat inflation

Here are two ASX dividend shares that I think can help protect against inflation.

Read more »