Investors seeking stable income in a volatile market often turn to dividend stocks. One such compelling option on the ASX is Rural Funds Group (ASX: RFF), a real estate investment trust (REIT) specialising in agricultural assets.
With an attractive distribution yield of approximately 6% and the benefit of quarterly cash payments, Rural Funds offers a unique opportunity for income-focused investors.
Even better, Rural Funds is set to pay its quarterly dividends next week. Is now the perfect time to buy Rural Funds shares ahead of its ex-dividend date on 27 June?
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Understanding Rural Funds Group
Rural Funds Group is Australia's only diversified agricultural REIT. It owns a portfolio of high-quality agricultural assets, including almond orchards, vineyards, cattle and cotton properties, macadamia orchards, and water entitlements.
These assets are leased to experienced operators under long-term agreements, providing a stable income stream and potential for capital growth.
Farmland has been a valuable asset for centuries, and it is likely it will remain so for the foreseeable future. The long-term stability appeals to many investors, as my colleague Tristan highlighted. Additionally, the ongoing growth of both Australian and global populations is a significant tailwind for the business.
Why Rural Funds stands out for dividend investors
The Rural Funds unit price has dropped 35% from its all-time high of $3.18 in January 2022 and has hovered around the $2 mark over the past year.
At the current price, Rural Funds offers a distribution yield of 5.67%, higher than many other dividend-paying stocks on the ASX.
Unlike many ASX dividend shares that pay dividends semi-annually, Rural Funds provides quarterly distributions. This regular income can be especially beneficial for retirees who rely on passive income for their living expenses.
Rural Funds' diversified portfolio across different agricultural sectors reduces the risk associated with any single commodity or market. The REIT's properties are leased to reputable operators under long-term agreements, often with built-in rental escalations.
Trading below its book value
After the recent weakness in its unit price, Rural Funds is trading below its book value. Rural Funds is trading at a price-to-book (P/B) ratio of 0.73x based on its reported number. However, this includes its water entitlements at their book values. Adjusting for this, reflecting the estimated market value of these assets, the company estimates its net asset value (NAV) at $3.07 per unit as of 31 December 2023. This makes its adjusted P/B ratio even lower, at 0.67x.
Such attractive valuations caught eyes of some analysts. Bell Potter highlighted its attractive valuation and high distribution yield as the reasons to like Rural Funds, as my colleague James said.
The Rural Funds Group share price finished Friday's trading up 0.98% at $2.07.
