There are certain ASX shares that could provide a high-quality stream of retirement income.
If I'm relying on passive income to pay for my living expenses, I'd want to have a high level of confidence that cash flow will continue coming even during a recession. Dividends aren't guaranteed, but I think some businesses are more likely to pay/grow dividends in a downturn than others.
Both of the ASX shares I'm going to talk about operate in defensive spaces which are appealing, in my view, for retirement income. Let's dive in.
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Propel Funeral Partners Ltd (ASX: PFP)
Propel is one of the largest funeral operators in Australia and New Zealand.
As the saying goes, there are two things certain in life – death and taxes. We can't invest in the Australia Taxation Office (ATO). Sadly, there is a certain volume of funerals required each year, making the sector very defensive.
The ASX share is seeing steady growth in the average revenue per funeral, which has generally been in line with inflation over the years. This is helping drive the company's top line and bottom line because its operating profit margins are rising over time as it benefits from increasing scale.
Propel is expecting more funeral volume growth in the coming years because of both Australia's growing and ageing population. According to Propel, death volumes are expected to increase at a compound annual growth rate (CAGR) of 2.6% between 2025 to 2030, and then a 2.9% CAGR between 2031 to 2040.
Its annual dividend has grown in each of the last four financial years. It currently has a grossed-up dividend yield of 4.4%, including franking credits. I believe that's a solid starting point for retirement income.
Rural Funds Group (ASX: RFF)
Rural Funds is a real estate investment trust (REIT) which leases farmland to high-quality tenants. While agriculture can be cyclical, the leasing of farms can provide consistent rental profit for the business and therefore investors.
Pleasingly, at the end of the FY25 half-year result, it had a weighted average lease expiry (WALE) of 13 years which gives a lot of income security for investors for the foreseeable future.
I also like how the business has a diversified portfolio across different farming subsectors including vineyards, almonds, cattle and macadamias. This reduces the risk of being too exposed to one sector, while also providing a wider search zone for opportunities.
In terms of the distribution, the ASX share grew its annual distribution each year between 2014 and 2022 and has maintained it since then due to the headwind of high interest rates.
It has guided another year of stable distributions in FY26, meaning a distribution per unit of 11.73 cents. That's a forward distribution yield of approximately 6.4%. I think that's a strong level of retirement income. With how rental income is regularly growing at most of its farms each year thanks to fixed increases or inflation-linked increases, I'm expecting the distribution per unit to increase in the medium-term, particularly thanks to the lower RBA cash rate.
