1 ASX dividend stock down 45% I'd buy right now

This is a business offering investors fertile returns.

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The ASX dividend stock Rural Funds Group (ASX: RFF) has suffered a significant decline in the last few years. Between 7 January 2022 and today, the business has dropped approximately 45%, making it look a lot cheaper to me.  

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This business owns a diversified portfolio of farmland spread across different states and farm types.

Rural Funds owns properties across almonds, macadamias, cattle, and cropping. Diversification is good for reducing risks, but it also means Rural Funds has a wider investment universe to look for opportunities.

Let's get into why I think the real estate investment trust (REIT) is an opportunity at this level.

Solid distribution

The ASX dividend stock has paid a distribution to investors each year since it listed in 2014. It hasn't reduced its cash distribution during that time, providing investors with very solid passive income in that time.

Despite the headwind of higher interest rates, the business has maintained its cash payout at 11.73 cents per unit.

Considering the Rural Funds share price has fallen so much, this has significantly boosted the distribution yield. At the current valuation, it offers an FY25 yield of 6.7%. That's an appealing yield, in my view.

Cheap valuation

Every six months, Rural Funds tells the market about its underlying net asset value (NAV). That includes the value of its property portfolio, the debt, its cash, the water rights, and so on.

We can't truly know how much Rural Funds' properties are worth unless the business tried to sell them all, so independent valuations are the best that we can go on.

In the recent FY25 half-year result, the ASX dividend stock reported that its NAV as at 31 December 2024 was $3.10 per unit. That means the current Rural Funds share price is trading at a 44% discount to that stated value.

Rising rental income and rental profit in FY25 and FY26 could help give the market more confidence in the underlying value of the assets.  

Further interest rate cuts?

The legendary investor Warren Buffett once explained the importance of interest rates to valuations. He said:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.

We recently saw the Reserve Bank of Australia (RBA) reduce the official cash rate by 25 basis points to 4.10%, and it is quite possible that there could be at least one more rate cut in the next 12 months. That would be a particularly useful boost to the ASX dividend stock because it could help lower the cost of its debt and also increase the value of the farm.

Overall, I think this is a good time to invest in Rural Funds shares in this uncertain time.

Motley Fool contributor Tristan Harrison has positions in Rural Funds Group. 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.

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