Retirees may be on the hunt for ASX dividend shares that can provide a solid base of passive income. I think Rural Funds Group (ASX: RFF) is one of the top options in retirement.
Rural Funds is a real estate investment trust (REIT) that owns farmland across Australia, in different states and climate conditions. It also has a large holding of water entitlements for its tenants to use.
For a few different reasons, I think the business fits what retiree investors may be looking for.
Image source: Getty Images
Stable payout
Retirees may be looking for businesses that can provide resilient payouts through all economic conditions. If I'm relying on investment income, I want to know it can continue flowing even if there's a downturn.
Of course, there is no absolute guarantee that every business will pay dividends.
Rural Funds has a number of high-quality tenants that are either high-quality international, listed or national entities. That helps ensure it continues to generate good rental profits.
Additionally, the ASX dividend share has a weighted average lease expiry (WALE) of more than a decade, giving investors significant income security and visibility with how long tenants are signed up.
The business increased its distribution each year between 2014 to 2022 and has maintained it since then despite the headwinds of higher interest rates. While I'd prefer growth, it's still a good sign that the payout hasn't been reduced despite the higher interest costs.
Plus, Rural Funds' rental contracts have indexation built into the leases, giving the business organic rental growth potential and a tailwind to increase its payout for retirees (and other investors) in the future.
Good dividend yield
The business has regularly paid an annual distribution per unit of 11.73 cents over the last few financial years, and I wouldn't be surprised if the ASX dividend share pays the same passive income again in FY27.
If Rural Funds does pay that level of distribution again in the 2027 financial year, it would translate into a distribution yield of 5.8%. In my view, that's extremely competitive with any term deposit rate out there that's available to Australians right now.
Compelling farm ownership at a discount
I like the diversification that Rural Funds can provide for retiree investors, with a focus on residential property, banks, and miners. Farmland is an integral part of the Australian economy, and this investment gives us exposure to cattle, vineyards, almonds, macadamias and cropping.
I believe the business is significantly undervalued based on its adjusted net asset value (NAV). It's 'adjusted' to include the market value of the water entitlements.
At 31 December 2025, it had an adjusted NAV of $3.10. That means it's trading at a discount of 35%, at the time of writing. There are very few REITs or ASX dividend shares that are trading as cheaply as that.
I think it's a great business to pick up right now, though it's not the only ASX dividend share I'd buy today.
