Rural Funds Group (ASX: RFF) is one of the leading S&P/ASX 300 Index (ASX: XKO) dividend stocks, in my opinion, and that view was boosted by the company's recent FY24 result.
The farmland real estate investment trust (REIT) reported several positives that made me believe now is a great time to invest for the long term. The business continues to perform well operationally, and I'd call the Rural Fund's share price a buy because of its valuation.
Let's get into why I'm a fan.
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Rising rental profits
One of the most important things for a good long-term performer in the REIT sector is rental growth.
In its FY24 results, Rural Funds reported that property revenue increased 8%, primarily due to additional rental income earned on macadamia developments.
While investment in its farms helps boost revenue, the REIT has in-built rental growth through contracted growth that is largely linked to either CPI inflation or fixed annual increases.
Rural Funds has been signing new contracts that unlock more rental income for the business. For example, the Cerberus cattle property lease, with $26.1 million of assets, is currently being documented.
In FY24, the adjusted funds from operations (AFFO) (rental profit) increased 2.8% to 11 cents per unit. FY25 AFFO is predicted to rise by 3.6% to 11.4 cents per unit. These numbers come despite the higher finance costs.
As the ASX 300 dividend stock's rental income keeps growing, and if interest rate cuts happen, then AFFO could keep rising at a solid rate and help fund larger distributions.
Ongoing solid distribution
The Rural Funds passive income has been flat in recent times, but I think that's a solid outcome in this higher-rate environment. Plenty of REITs have reduced their payouts due to the current financial environment.
The ASX 300 dividend stock is guided to pay a distribution of 11.73 cents per unit in FY25. That translates into a forward distribution yield of 5.7%.
Rural Funds was growing its distribution by an average of 4% per annum before interest rates jumped, and it wouldn't surprise me if the business returned to that goal in the medium term.
Big asset discount
The REIT reported its adjusted net asset value (NAV) increased 7.2% over the year to $3.14 per unit, which benefited from independent asset valuations conducted on 69% of assets.
We can only know with certainty how much its farms are worth if it sells them, but $3.14 is the best figure we can use.
The Rural Funds share price is currently at a NAV discount of around 34%, which I think is very appealing. I'd be happy to buy some units of the ASX 300 dividend stock right now.
