The ASX dividend stock Rural Funds Group (ASX: RFF) is down 42% from its peak a few years ago at the start of 2022, as the chart below shows.
Rural Funds is real estate investment trust (REIT) that owns a number of farms across Australia, providing diversification both geographically and climate conditions.
In the current wider economic situation of uncertainty and falling interest rates, I think this business is a great option to consider buying right now for a few different reasons.
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Big asset discount
Each REIT regularly tells investors about its underlying value per share/unit, either with the net asset value (NAV) or net tangible assets (NTA) figure. That includes the value of the properties, the loans and everything else.
The last update that investors heard was the ASX dividend stock's FY25 half-year result, for the period ending 31 December 2024. In that result, the business reported an adjusted NAV of $3.10 per unit.
That means, at the current Rural Funds share price, it's trading at a discount of 41% to its stated underlying value. In my eyes, that's a massive discount considering the other factors with this investment which I'll get into below.
Pleasing rental profit and distribution yield
As a landlord, the business rents out its farms to a variety of blue-chip tenants. Those farms are spread across different farming sectors including cattle, almonds, macadamias and vineyards.
The business makes a pleasing amount of rental profit each year, with the rental income increasing annually. The steady rental growth is happening thanks to contracted increases that are either fixed or linked to inflation, plus the occasional market review.
While the business does regularly invest in its farms to improve their productivity for tenants (such as increased water access), the ASX dividend stock is also giving investors a very pleasing distribution yield each year.
It recently provided guidance that it expects to pay a cash distribution of 11.73 cents per unit in FY26. At the current Rural Funds share price, that translates into a forward distribution yield of 6.4%, which I think is a pleasing yield, particularly with more potential rate cuts on the horizon.
Interest rate cuts
I think this business is well-positioned to benefit from interest rate cuts.
Further reductions of the RBA cash rate could lead to a number of developments. It should mean the amount of interest the business pays reduces in the coming years.
Rate cuts could also boost the value of the farms that the ASX dividend stock owns.
Additional rate cuts may also mean that investors are willing to close the discount between the Rural Funds share price and its adjusted NAV.
Finally, if savings accounts and bonds offer less income, that could mean income-seekers are attracted to stable/defensive investments such as REITs like this ASX dividend stock.
For multiple reasons, I think this is a great time to consider this business.
