Rural Funds Group (ASX: RFF) could be one of the most appealing high-yield ASX stocks, in my view.
It's a real estate investment trust (REIT) that owns farmland in various sectors, including cattle, almonds, macadamias, and vineyards. The farms are located in different climates and states.
As a landlord, it doesn't have the same operational risk as tenants like Select Harvests Ltd (ASX: SHV) and Treasury Wine Estates Ltd (ASX: TWE) – it collects rental income from them. However, it also owns water entitlements to help provide value for tenants, as both crops and animals need water.
Let's look into the four factors of why I think this high-yield ASX stock could be a top buy.
High yield
In the last few years, the business has paid an annual distribution per unit of 11.73 cents in cash, and it expects to pay the same amount in FY26.
At the current Rural Funds share price, that translates into a forward distribution yield of 6.8%.
In the current environment, that's pleasingly above what we can get from a savings account.
Asset discount
Every result, the high-yield ASX stock tells investors what its underlying value is. That can be measured by the net asset value (NAV).
At 31 December 2024, it had a NAV of $3.10 – that includes the property values and the value of the debt.
At the current Rural Funds share price, it is trading at a 45% discount to its latest NAV. That's attractive, in my view.
Inflation
Inflation has slowed down compared to a couple of years ago, but I think the business is at a useful crossroads.
If tariffs and trade wars reignite global inflation, then Rural Funds could benefit because some of the rental growth with its contracts is linked to inflation. It could experience a bump in rental growth.
If there isn't a bump in inflation, then central banks may feel comfortable taking action and reducing rates to boost economic growth.
Interest rate cuts?
REITs are very exposed to interest rates because of the relatively high level of debt they normally hold, and the effect rates have on property prices.
If there are any further rate cuts this year, I think they could significantly improve Rural Runds' rental profitability and underlying value.
Whatever happens next, I think this high-yield ASX stock is about to benefit.
According to reporting by the Australian Financial Review, the market is pricing in multiple rate cuts this year by the Reserve Bank of Australia (RBA). Time will tell whether that happens, but I think Rural Funds shares are priced too cheaply for that possible outcome of more rate cuts.
