1 incredible ASX dividend stock to buy now and hold forever

I've been buying shares of this excellent passive income payer.

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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.

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Rural Funds Group (ASX: RFF) is an ASX dividend stock that everyone should pay attention to, in my opinion. It's one ASX share I have bought myself recently and plan to hold forever.

The farmland real estate investment trust (REIT) is unique on the ASX. There are plenty of operating agriculture companies, but their profit and performance can often be quite volatile. Rural Funds can provide a higher level of stability because its underlying earnings are based on consistent rental income rather than variable commodity-linked revenue.

Why it looks like a buy now

Every business has an underlying balance sheet value, which can be measured with the net asset value (NAV) metric. This is a net total of the assets minus the liabilities.

Every result, Rural Funds tells investors what its adjusted NAV is, which includes the market value of its water entitlements (rather than at cost).

Rural Funds disclosed that its adjusted NAV on 31 December 2023 was $3.07 per unit, which was up around 5% from 30 June 2023, primarily due to the asset revaluations.

At the current Rural Funds share price, it's at a discount of around 33% to the December 2023 NAV. I think that's a compelling discount.

It's challenging to say precisely how much the ASX dividend stocks' farms are worth without Rural Funds going through a sales process, but another way to judge it would be to look at the distribution yield.

The business currently pays an annual distribution of 11.73 cents per unit, which translates into a distribution yield of 5.8%. I think that's a solid starting point for the passive income.

Why I'd hold Rural Funds shares forever

Farmland has been a valuable asset for many centuries, if not thousands of years. I believe it will continue to be a useful asset for a long time to come, so I'm comfortable with the idea of owning Rural Funds shares for the rest of my life.

The business has rental growth built into its contracts, with some contracts linked to CPI inflation and others having a fixed annual increase. This can help drive rental income higher over time, offsetting the higher cost of debt and hopefully helping fund larger distributions in future years.

Another tailwind for the business is that the Australian and global population continues climbing, which should be a helpful tailwind for food demand, which can help increase the underlying value for Rural Funds' farms.

Overall, I think this ASX dividend stock is a solid candidate to own for the ultra-long term.

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.

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