ASX dividend shares can be an excellent source of passive income at any point in the economic cycle. Particular industries and businesses look ready to benefit from the Reserve Bank of Australia (RBA) 's interest rate cuts.
After more than a year of keeping rates unchanged, the RBA pulled the trigger and cut the official cash rate by 25 basis points to 4.10%.
While the current rate is still high, it seems the Australian central bank is now considering normalising rates. It could take some time before interest rates return to a level closer to 3% than 4%, but the outlook for rate-sensitive businesses is becoming more positive.
That's one of the main reasons I think the two businesses look particularly appealing.
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Centuria Industrial REIT (ASX: CIP)
This real estate investment trust (REIT) owns a portfolio of high-quality industrial properties across Australia.
High interest rates have been a problem for REITs in a number of ways, including the higher cost of debt (hurting rental profits and distribution) and a headwind for property valuations.
The RBA rate cut could help the ASX dividend share's profit, distribution and property value in FY25 and FY26. Further rate cuts could help the business in the coming financial years.
Despite the higher interest rate, the ASX dividend share is expected to increase its annual distribution to 16.3 cents per unit in FY25. That means its current distribution yield is expected to be 5.4%.
Australian industrial markets have the lowest industrial vacancy rate among comparable markets in the US, Europe, and Asia. This, plus supply constraints, is helping rental rates.
Trends like e-commerce and total population growth are helping increase demand for industrial property. This helped the business grow its like-for-like net operating income (NOI) by 6.4% in the first six months of FY25.
Its net tangible assets (NTA) were $3.89 in December 2024, so the share price is trading at an appealing 23% discount.
Bailador Technology Investments Ltd (ASX: BTI)
Bailador invests in small technology companies that typically have the ability to generate repeat revenue, have strong unit economics, have a global growth opportunity and are led by founders.
The ASX dividend share's portfolio includes businesses in areas like hotel software, digital healthcare, wealth management, volunteer management and more.
In theory, a reduction in the RBA interest rate should increase the value of these tech companies. It could also lead to investors wanting to close the discount gap between the underlying value of Bailador's portfolio and its share price.
At 31 January 2025, the business had post-tax net tangible assets (NTA) per share of $1.67. Bailador is currently trading at a sizeable discount to this, though it's worth noting that the Siteminder Ltd (ASX: SDR) share price – one of Bailador's investments – has fallen 17% since then. So the current NTA discount is likely closer to 20% than 30%, but it's still a very large and attractive discount, in my opinion.
It aims to pay a dividend based on its asset value. In the FY25 half-year result, the interim dividend declared equated to an annualised grossed-up dividend yield of 8%, including franking credits. That's a strong yield, in my view.
