The ASX dividend stock BWP Trust (ASX: BWP) could be one to watch in the current economic environment, especially considering it offers investors an impressive amount of passive income.
If you haven't heard of this business, it's a real estate investment trust (REIT). Its properties are well-located large format retailing buildings, with Bunnings Warehouse as the main tenant.
It owns dozens of large properties that are leased to the hardware business, which is owned by Wesfarmers Ltd (ASX: WES). The BWP portfolio has a 99% occupancy rate.
I view Bunnings as one of the best retailers in Australia, so it's a great tenant to have.
There are three reasons why I think BWP shares are a great buy for passive income.
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Rental income growth for ASX dividend stock
I think one of the most important things for a good REIT is that it grows its revenue organically. This helps offset higher debt costs and can drive distributions higher for investors.
In the 2024 financial year, the business delivered like-for-like rental growth of 4.2%. This figure takes into account the average inflation on CPI-linked leases of 5.3% and fixed increases of 3%.
While those growth rates are not massive increases, they are high enough to deliver a pleasing compounding of revenue over time.
Passive income from the ASX dividend stock
The ASX dividend stock has paid the same distribution per unit of 18.29 cents for the last five financial years, which currently translates into a distribution yield of 5.5%.
That's noticeably better than what Aussies can get from a term deposit, and the distribution can grow in future years thanks to rental income growth and possibly lower interest rates.
The Reserve Bank of Australia (RBA) said in its December statement that it's seeing progress on inflation. The RBA said:
While headline inflation has declined substantially and will remain lower for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. The November SMP forecasts suggest that it will be some time yet before inflation is sustainably in the target range and approaching the midpoint. Recent data on inflation and economic conditions are still consistent with these forecasts, and the Board is gaining some confidence that inflation is moving sustainably towards target.
Lower interest rates may also help the BWP share price, the size of the discount between the share price and the underlying value, and the actual underlying value of the properties.
Large asset discount
BWP's properties are regularly valued by independent experts, so investors can have some level of confidence in its property portfolio valuation.
At the end of FY24, the business had net tangible assets (NTA) of $3.79, an increase of 1.1% from the previous year.
Therefore, at the current BWP share price, the ASX dividend stock is trading at a 12% discount to its latest NTA. I think it's at a good price, near a 52-week low after dropping more than 10% since the end of September 2024 and 25% since the end of December 2020, as shown on the chart below.
