Retirees have a wide range of options for passive income on the Australian stock exchange for cheap ASX dividend shares, including real estate investment trusts (REITs) and listed investment companies (LICs), which are trading at a bigger discount than they typically do.
There are some businesses on the ASX that have a significant amount of their value attached to the assets they own on their balance sheets. Some businesses are trading at values significantly less than what their balance sheet (underlying value) suggests. That's called the price-to-book ratio.
REITs are businesses that own significant commercial property portfolios which are leased to tenants. Those REITs can then pay pleasing distributions from the rental profits generated.
When discussing ASX real estate shares, I normally mention the REITs Centuria Industrial REIT (ASX: CIP), Charter Hall Long WALE REIT (ASX: CLW), and Rural Funds Group (ASX: RFF). However, in this article, I'm also going to include the two ideas below for retirees.
HomeCo Daily Needs REIT (ASX: HDN)
This ASX dividend share is invested in a number of commercial real estate areas, such as neighbourhood retail, large-format retail, health and services, and logistics.
Some of its biggest tenants include Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL), Wesfarmers Ltd (ASX: WES), JB Hi-Fi Ltd (ASX: JBH), Super Retail Group Ltd (ASX: SUL), and Nick Scali Limited (ASX: NCK).
Despite the headwind of higher interest rates, the business has managed to keep its distribution stable in the last few years.
The business is guiding it will grow its distribution by 2.4% to 8.5 cents per unit in FY25, which currently translates into a distribution yield of 7.1%. The funds from operations (FFO) – net rental profit – is expected to grow by 2.3% to 8.8 cents per unit.
In a December 2024 update where the business announced a 3% increase of the portfolio value from June 2024, HomeCo Daily Needs REIT said that it is benefiting from positive net operating (rental) income growth and the stabilisation of property prices.
The business said its point of difference remains its "value accretive and tenant-demand led development pipeline, underpinning future growth over the long-term."
The ASX dividend share is trading at a 17.5% discount to the net tangible assets (NTA) at June 2024 of $1.44. Hence, I'd call this a cheap ASX dividend share.
BWP Trust (ASX: BWP)
This REIT owns a large portfolio of warehouse properties that are leased to Bunnings, one of the businesses owned by Wesfarmers. Wesfarmers is one of the main shareholders of BWP, with a 22.3% holding at 30 June 2024.
BWP grew its distribution in FY24 to 18.29 cents after keeping its payout stable since 2020. It achieved like for like rental growth of 4.2% in FY24, which includes the average inflation-linked lease increase of 5.3%. Six market rent reviews finalised during FY24 led to rents increasing 4.4% on the previous rent.
In my view, Bunnings is one of the largest and most resilient businesses in Australia. It is a great tenant for BWP.
BWP expects its distribution per unit to grow by 2% in FY25, which implies a potential FY25 distribution yield of 5.5%.
It's trading at an 11% discount to the NTA of $3.79 at 30 June 2024, which looks appealing to me.
With a possible interest rate cut getting close in Australia, both BWP and HomeCo Daily Needs REIT look like appealing cheap ASX dividend shares to me for retirees.
