The Australian dividend stock Rural Funds Group (ASX: RFF) has proven to be an impressive cash flow option over the last few years.
Numerous real estate investment trusts (REITs) have cut their distributions during the past five years due to the COVID-19 pandemic, inflation and higher interest rates.
Names like Scentre Group (ASX: SCG), Stockland Corporation Ltd (ASX: SGP), GPT Group (ASX: GPT), Vicinity Centres (ASX: VCX) and Dexus (ASX: DXS) have all reduced their distributions in recent history.
Agricultural landlord Rural Funds, which owns cattle, vineyards, and almond, macadamia and cropping farms, hasn't cut its distribution per unit during this difficult period. I think that's worth knowing about.
Solid passive income record
Rural Funds grew its annual payout for investors each year between 2014 to 2022. It has maintained its distribution at the same level of 11.73 cents per unit since 2022.
While I'd prefer to see income growth right now, this is a solid record of consistency for investors focused on Australian dividend stocks. It's good to see that Rural Funds has committed to paying a dependable distribution even during difficult periods.
Ongoing reliability
Rural Funds pays an equal distribution to investors every quarter, which means investors are receiving their cash flow like clockwork.
Currently, the business delivers its quarterly distributions in January, April, July and October.
The business has provided guidance that its distribution per unit will be 11.73 cents in FY25, the same as FY24. That works out to be a distribution yield of 6.1% at the current Rural Funds share price of $1.91.
Can the distribution rise in the future?
Ideally, I want to see Australian dividend stocks provide growing income to investors over time, helping to offset inflation and grow wealth.
Despite the difficult conditions, Rural Funds' adjusted funds from operations (AFFO) increased by 2.8% in FY24. This metric measures the business's net rental profit. It expects to increase its AFFO by 3.6% in FY25.
The business is benefiting from the organic rental growth of its farms, which have fixed rental increases or inflation-linked rental increases built into the portfolio.
Rural Funds is also investing in its farms to make them more productive for tenants, such as increasing water access. It's also working on a large macadamia farm that should unlock stronger rental returns for investors and hopefully increase the underlying value of the land.
There's no guarantee the Australian dividend stock's distributions will grow at any particular speed, but the business previously aimed to grow its distribution by 4% per annum.
Over time, Rural Funds should be able to generate stronger rental profits and continue paying distributions like clockwork.
