The ASX dividend stock Rural Funds Group (ASX: RFF) is a top pick because of the passive income yield and the attractive value on offer.
The farmland real estate investment trust (REIT) just reported its FY26 half-year result. The income and earnings were not a surprise, but the ongoing growth of the net asset value (NAV) was a pleasing positive.
As a reminder, the business owns a portfolio of farmland across Australia that includes cattle, almonds, vineyards, macadamias and cropping.
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Strong rental earnings
The business has a diverse portfolio of assets and a strong group blue-chip tenants, giving Rural Funds resilient rental income each year. Around 84% of forecast income for FY26 comes from corporate and institutional tenants.
It has rental growth built into its contracts which are linked to either inflation, or the contract(s) has fixed annual increases. It can also develop farms to unlock more rental income, either by adding infrastructure or changing it to a better form of crop.
For the first six months of FY26, the business reported that net property income increased 6.8% to $48.6 million, primarily due to additional rental income earned on macadamias developments.
Pleasingly, its rental income is locked in for the long-term because it has a long weighted average lease expiry (WALE) of around 13 years, which is one of the longest in the ASX REIT sector.
Great value ASX dividend stock
Rural Funds regularly tells investors what its portfolio is worth with the adjusted NAV figure – it's adjusted to include the market value of the water entitlements it owns. The NAV includes all assets and liabilities, including the property portfolio, loans, cash and so on.
In the first half of FY26, it reported that its adjusted NAV grew by 0.6% to $3.10. This means that, at the time of writing, it's trading at a discount of more than 30%, which is very attractive to me.
There are not many asset-heavy businesses on the ASX trading at a discount of 30% to their underlying value. That makes it a bargain buy, in my opinion.
Strong passive income yield
The ASX dividend stock is expecting to pay a very pleasing distribution during FY26, equating to a very attractive yield.
The Rural Funds unit price has risen 4% during February (at the time of writing), but the business still offers a very good yield.
Its distribution guidance of 11.73 cents per unit translates into a potential passive income yield of 5.5%, which is better than what term deposits are offering. I'm expecting the distribution to increase in the coming years as rental earnings increase.
