Buy this cheap ASX 300 stock for a 26% return

Analysts expect big returns from this undervalued stock.

| More on:
Woman in celebratory fist move looking at phone

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

sdf

Investors who are looking for a combination of gains and dividends may want to check out Rural Funds Group (ASX: RFF).

That's because the team at Bell Potter believes the ASX 300 stock could be significantly undervalued at current levels.

What is this ASX 300 stock?

Firstly, if you're not familiar with Rural Funds, let's take a quick look at its business.

It is a real estate property trust that owns a diversified portfolio of Australian agricultural assets. It generates revenue from the leasing of almond orchards, macadamia orchards, poultry property and infrastructure, vineyards, cattle properties, cropping properties, agricultural plant and equipment, cattle, and water rights.

Given that demand for agricultural property is always in demand, this makes the ASX 300 stock a defensive option for investors. Particularly given its long tenancy agreements and built-in rental increases.

At the last count, Rural Funds had a weighted average lease expiry (WALE) of 12.8 years, with leases predominantly on a triple-net structure.

Furthermore, its portfolio is leased out to quality tenants. Management notes that ~80% of FY 2024 income is coming from corporate and listed lessees. This includes JBS, Select Harvests Ltd (ASX: SHV), Stone Axe, and Treasury Wine Estates Ltd (ASX: TWE).

Why is it a buy?

According to a recent note, Bell Potter believes that its shares are too cheap at current levels to ignore. It highlights the significant discount to net asset value (NAV) that the ASX 300 stock is trading at. The broker said:

The ~30% [now 35%] discount to market NAV appears excessive when we consider the material improvement in counterparty profitability indicators in recent months (with cattle, almond and macadamia nut prices all rallying off the lows) and that we are likely to see asset sales at or around the market value of the assets.

Bell Potter currently has a buy rating and a $2.40 price target on Rural Funds' shares. Based on its current share price of $2.00, this implies a potential upside of 20% for investors over the next 12 months.

But the returns won't stop there. Rural Funds is one of the more generous dividend payers on the Australian share market.

Bell Potter expects this to remain the case for the foreseeable future and is forecasting distributions of 11.7 cents per share in FY 2024, 11.7 cents per share in FY 2025, and 12.2 cents per share in FY 2026. This equates to dividend yields of 5.85%, 5.85%, and 6.1%, respectively.

Overall, this means that a total return of 26% could be on the cards for investors between now and this time next year.

Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates. 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 Australia has recommended Treasury Wine Estates. 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

Man looking amazed holding $50 Australian notes, representing ASX dividends.
Dividend Investing

5 top ASX dividend shares to buy next week

Analysts have good things to say about these shares. Let's see what they offer.

Read more »

Young businesswoman sitting in kitchen and working on laptop.
Dividend Investing

Where I'd invest $5,000 into ASX dividend shares

I think these stocks are appealing options.

Read more »

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

Analysts say these ASX 200 dividend shares are top picks

Let's see why they are feeling bullish about these income options.

Read more »

Clock with post it as a reminder of Tax Time
Dividend Investing

Turn your tax return into passive income with these ASX dividend shares

These are some high paying dividend shares I’m keeping an eye on. 

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

These ASX dividend stocks offer 6%, 8% and 11% yields

Analysts are forecasting big yields from these buy-rated stocks.

Read more »

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Dividend Investing

5 fantastic ASX ETFs to buy in June with $10,000

Let's see why these funds could be good picks.

Read more »

Male hands holding Australian dollar banknotes, symbolising dividends.
REITs

2 ASX REITs announcing new dividends today

Money, money, money!

Read more »

A man holds his glasses up to his forehead looking gobsmacked over ASX share price rises
Dividend Investing

These ASX dividend shares could rise 25% to 60%

Brokers expect big returns and great yields from these shares.

Read more »