How I'd take advantage of a once-in-a-decade ASX passive income opportunity

Are you missing out on some hefty dividend income from this corner of the ASX?

| More on:
Two laughing young women hold shopping bags and ride an escalator up to another level in a Scentre Group shopping centre.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • It's well known that ASX investors love receiving dividend income, and franking credits, from their shares
  • Banks, miners and ASX blue chips are the most common choice for the ASX income investor
  • But real estate investment trusts (REITs) could be an overlooked well of passive income on the ASX right now, thanks to a once-in-a-decade opportunity

It's no secret that ASX investors who buy shares enjoy receiving cash returns on their investments in the form of dividends. The ASX is famous for its passive income prowess, boosted by our unique system of franking. That's why you tend to get a far higher dividend yield on an ASX index fund than an American one, for example.

As it happens, there could be a once-in-a-decade passive income opportunity on the ASX right now in an oft-overlooked corner of the share market.

What's in a REIT?

I'm talking about real estate investment trusts (REITs). REITs are a unique investment on the ASX, thanks to a number of distinguishing features. As its name implies, a REIT is a trust that solely invests in property. Not just houses though. The property a REIT can own could be residential, industrial or commercial in nature.

A prominent example of a REIT is Scentre Group (ASX: SCG). If you've ever visited a Westfield shopping centre in Australia or New Zealand, you've visited a Scentre property.

Because it is a trust and not a company, a REIT has different tax treatments regarding dividends and ownership. But they can be especially lucrative to own for passive income investors nonetheless.

REITs have been around for a very long time. So why would these investments be a once-in-a-decade opportunity right now? Well, it comes down to interest rates.

As interest rates rise, investing in property becomes less attractive, thanks to the rising cost of maintaining a loan on a property. And interest rates today happen to be at a decade high.

Although we haven't quite seen high rates hit the residential housing property markets in Australia, the value of other property has been under pressure over the past year or so. That explains why we've seen the S&P/ASX 200 A-REIT Index (ASX: XPJ) fall more than 22% since the start of 2022.

REITs offer unprecedented passive income for ASX dividend investors

But here's the thing. Some REITs can offer higher quality assets and returns than others. So this across-the-board decline that we've seen in the REIT space has resulted in some mighty dividend distribution yields on offer at present.

Take Westfield-owner Scentre Group. Its share price has fallen by 15% since the start of 2022, pushing its trailing dividend distribution yield to 5.92% (as of yesterday's market close). That's despite Scentre increasing its raw dividend distributions every year since 2020.

The Charter Hall Long WALE REIT (ASX: CLW) is another one to watch. This REIT owns properties with exceptionally long leases. These include supermarket distribution centres, government offices and pubs. It's lost around 20% of its value since the start of 2022 and offers a trailing dividend distribution yield of 6.97% today.

Rural Funds Group (ASX: RFF), an agricultural REIT that specialises in owning farmland, is another investment shunned by the markets in recent times. But it has still been steadily raising its payouts in recent years and currently has a trailing yield of 6.66% (perhaps not the best buying point for the superstitious investor).

So there is certainly a lot of passive income on the table when it comes to ASX REITs right now. We might just have a once-in-a-decade opportunity here for income investors to think about.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Rural Funds Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Happy young woman saving money in a piggy bank.
Dividend Investing

How to make $10,000 of passive income a year

Here's how to make the share market your own personal ATM.

Read more »

Blue chips with stock written on them.
Dividend Investing

2 ASX blue-chip shares offering big dividend yields

These businesses have a lot to offer income-focused investors.

Read more »

Woman laying with $100 notes around her, symbolising dividends.
Dividend Investing

How much dividend income does the average ASX investor earn?

It's an impressive amount!

Read more »

Person holding Australian dollar notes, symbolising dividends.
Dividend Investing

Which ASX 200 sector paid the best dividends in FY25?

We reveal the dividend returns of each of the 11 market sectors in FY25.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Are CBA shares still a good buy today for passive income?

Looking to earn passive income from ASX dividend stocks? Here’s my take on CBA shares.

Read more »

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Dividend Investing

Where to invest $50,000 in ASX dividend shares

Let's see why these shares could help income investors build a strong portfolio.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

2 Australian stocks with ultra safe dividend yields

These businesses have paid consistently-growing dividends for decades.

Read more »

Happy man holding Australian dollar notes, representing dividends.
Dividend Investing

$500 buys me 233 shares in this 10%-yielding income stock!

Macquarie expects this stock to offer big yields.

Read more »