ASX shares can be a great source of passive income in retirement. Particularly those with strong stability credentials.
If I relied on my investment portfolio for dividends to spend on bills and discretionary items in retirement, I'd want to own ASX stocks that are likely to keep paying even in a recession.
But, I'd also want to ensure I'm invested in businesses I could own for decades and have little worries about them.
There aren't many investments that tick all the boxes, but the ASX shares below could be two of the best.
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Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I think Soul Patts is a fantastic pick for Australians in retirement because of various factors.
It owns a diversified portfolio across various asset classes and industries, including resources, telecommunications, building products, property, agriculture, swimming schools, credit/bonds, ASX blue chip shares, ASX small-cap shares and more.
This diversified portfolio pays Soul Patts dividends, distributions, and interest, which can be used to grow the dividend. The retirement ASX share pays out most of its net cash flow as a dividend and reinvests the retained amount into more opportunities, which can help grow the dividend further with time.
The current grossed-up dividend yield is 3.7%, which I think is a solid starting point. Each year, it could become even more attractive.
Rural Funds Group (ASX: RFF)
Rural Funds is a sizeable real estate investment trust (REIT) that owns a portfolio of farmland in different states and climates across Australia. It's invested in almonds, macadamias, cattle, vineyards, and cropping.
Farmland has been an essential asset for thousands of years, and I think it will remain so for at least the rest of my lifetime.
High interest rates are acting as a headwind for both the Rural Funds share price and its rental profit, but this could be the best time to invest in the retirement ASX share, with rate cuts getting closer (whenever that might be).
The Rural Funds share price is down 34% since January 2022, pushing the prospective distribution yield higher. The current quarterly distribution translates into a 5.6% yield.
With rental income growth built into most contracts, I think Rural Funds' distribution can rise in the coming financial years — while still offering a good starting yield for people in retirement. It has grown its distribution each year between 2014 and 2022 and has maintained the payout since then, demonstrating stability.
It's currently trading at a 32% discount to the stated net asset value (NAV) of $3.07 at 31 December 2023. That's a large and attractive discount in my opinion.
