The S&P/ASX 300 Index (ASX: XKO) stock Rural Funds Group (ASX: RFF) looks like an excellent choice for passive income right now. I'm excited by its potential to be one of the most appealing ASX dividend shares in the next few years.
If you haven't heard of this business before, it's a real estate investment trust (REIT) that owns a portfolio of farms around Australia. Those farms include almonds, macadamias, cattle and vineyards.
The business has a number of high-quality tenants including Olam, JBS, Select Harvests Ltd (ASX: SHV), Australian Agricultural Company Ltd (ASX: AAC) and Treasury Wine Estates Ltd (ASX: TWE).
Another pleasing attribute about the business is that its rental agreements are locked in for the long-term, providing investors both visibility and security. In the FY25 half-year result, Rural Funds revealed that it had weighted average lease expiry (WALE) of 13 years. That's one of the longest on the ASX.
The ASX 300 stock is also benefiting from steady rental growth at its farms. Some of the properties have fixed annual rental increases, while others have increases linked to inflation. Some of the contracts also have market reviews. In the HY25 result, Rural Funds revealed market rent reviewed based on independent valuations for three cattle properties represented a 34% uplift in rent.
The business pays a distribution every three months, which is an appealing regular payment of cash flow. To get a monthly goal, I think it'd be best to think of a yearly target and then divide that into 12 equal amounts.
Reaching $150 per month of passive income translates into an annual goal of $1,800.
The ASX 300 stock has guided that it will pay an annual distribution per unit of 11.73 cents in FY26. At the current Rural Funds share price, that translates into a distribution yield of 6.4%.
If we owned 15,346 units of Rural Funds, we'd receive $1,800 of annual passive income, based on the projected payout.
The Reserve Bank of Australia (RBA) has already cut the official cash rate twice, and there are expectations of multiple cuts over the next 12 months.
I think further rate cuts could be very beneficial for the business, it could boost rental profits if it lowers interest costs, it may help support property prices and it could help reduce the very appealing discount between the Rural Funds share price and its underlying value.
At 31 December 2024, the business had an adjusted net asset value (NAV) of $3.10. That means the Rural Funds share price is valued at a 41% discount to the adjusted NAV.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.