The ASX stock Charter Hall Long WALE REIT (ASX: CLW) looks like it could be one of the most effective picks for passive income.
I think investors would be well served by looking at the real estate investment trust (REIT) sector for opportunities right now, given how low share prices have fallen.
There's an obvious headwind for REITs right now – higher interest rates. It's a key tactic by central banks to try to reduce inflation by hiking interest rates and trying to take some heat out of the economy.
Higher interest rates are a significant headwind for REITs because they increase borrowing costs and can hurt property valuations.
For Charter Hall Long WALE REIT, this could be the right time to pounce.
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Significant diversification
Plenty of Australian investors may have a significant sum of money invested in a single property, whether that's a residential property or commercial property.
With a REIT like Charter Hall Long WALE REIT, investors can buy exposure to a portfolio of over 500 properties in a single investment, while providing great passive income.
The ASX stock is invested across numerous areas, including government buildings (like Geosciences Australia), hotels, grocery and distribution, data centres, telecommunications exchanges, service stations, banking and professional services, food manufacturing, healthcare, Bunnings properties and so on.
I like how the business can provide exposure to all of those areas with just a single investment. How good is that?
It could become even more diversified in the future, since the ASX stock has the flexibility to invest anywhere for potential returns.
Large dividend yield
Charter Hall Long WALE REIT has a very generous distribution payout ratio of 100% of rental earnings. This means investors can fully benefit from the REIT and earn a higher yield than many other investments currently offer.
Despite the headwind of higher interest rates, the ASX stock expects to maintain its distribution at 25.5 cents per security in FY27, the same as the 2026 financial year.
At the time of writing, its projected payout translates into a forward distribution yield of 7.8%, which is a huge starting yield.
Its organic rental growth could help support the distributions in the coming years. The rental income is growing either in line with inflation or at a solid fixed annual rate. During FY26, the ASX stock achieved average annual net property income growth of 3.1%.
$800 per month of passive income
The ASX stock does not pay monthly, but it does pay quarterly, which I'd describe as pleasingly frequent.
However, we should think of the monthly goal as an annual goal and then divide that by 12. The annual goal is $9,600.
As mentioned, the business expects to pay an annual distribution of 25.5 cents per security. To generate $9,600 of annual passive income, we're talking about needing 37,648 Charter Hall Long WALE REIT units.
Given it's trading at a 30% discount to its net tangible assets (NTA) of $4.71 as at 30 June 2026, this looks to me like a great time to invest.
