The ASX dividend stock Rural Funds Group (ASX: RFF) could give people in retirement almost everything they need from an investment.
The multiple rate cuts that the RBA has implemented have made interest rates from savings accounts and term deposits look less attractive. They are still effective places to protect capital, but their passive income potential has reduced.
With that in mind, ASX dividend stocks with strong yields could be a great pick. That's one of the main reasons Rural Funds is so appealing. Before I get to the passive income potential, let's talk about another key benefit.
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Diversification
Plenty of Aussies have significant wealth allocation to residential property, ASX bank shares and ASX mining shares.
Even investors in index-based ASX exchange-traded funds (ETFs) have a lot of indirect exposure to ASX bank shares and ASX mining shares because of their large weighting in the S&P/ASX 200 Index (ASX: XJO).
Rural Funds gives investors exposure to owning farmland, which is an integral part of the Australian economy. But, it's quite different to the other assets many people in retirement may be invested in. I think that's good diversification.
The real estate investment trust (REIT) itself has a diversified portfolio across a number of agricultural areas including vineyards, macadamias, cropping, cattle and almonds.
Distribution yield
A good ASX dividend stock in retirement should offer a pleasing starting yield.
Rural Funds is expecting to pay a distribution of 11.73 cents per unit in FY26. At the current Rural Funds unit price, that translates into a forward distribution yield of approximately 6%.
While there are other businesses that may have larger dividends, there are few which have as resilient payments, in my view. Plus, I believe the distributions can grow in the coming years as Rural Funds generates higher rental earnings, which would be a pleasing attribute in retirement.
Rising rent and attractive value
The business is expecting to generate rental profit – adjusted funds from operations (AFFO) – of 11.7 cents per security. This would represent growth of 1.7% year-over-year.
Most of the ASX dividend stock's rental income has indexation mechanisms. A majority of revenue growth is linked to CPI inflation, with another 29% having fixed annual increases. This provides a very useful and natural boost to the REIT's top line each year.
I'm expecting long-term rental growth can help drive the distribution higher in the coming years.
Plus, it seems to be trading at great value because its unit price is significantly (close to 40%) below the adjusted net asset value (NAV) of $3.08 at June 2025. I believe the falling interest rate could lead to a reduction of that discount. I think it's a great time to invest for people in retirement.
