Rural Funds Group (ASX: RFF) announced its FY21 half-year result today, is it the best ASX dividend share Aussies can buy?
What did Rural Funds report in HY21?
The business reported that its adjusted funds from operations (AFFO), which is essentially its rental profit, declined by 6.3% to $22.17 million. In terms of per unit/share, AFFO fell by 7% to 6.6 cents.
However, Rural Funds was expecting this after the sale of its poultry assets. The chicken assets generated a high level of short term income, but they didn’t offer much growth potential. Rural Funds said the lost income was offset by the income from new acquisitions, development capital expenditure, rental income indexation and an increase in J&F guarantee income.
One recent $56.4 million acquisition called Maryborough, which was sugar cane farms, will be turned into macadamia orchards over time. Rural Funds has also bought over 8,000 ML of water entitlements to help this asset. In the 2021 calendar year, around 500 hectares of macadamia orchard developments is planned.
Rural Funds said it was on track to meet its full year forecast of AFFO of 11.7 cents.
The adjusted net asset value (NAV) of Rural Funds increased by 4% to $2.01 per unit at 31 December 2020.
Rural Funds distribution and FY22 guidance
So far in FY21, Rural Funds has paid 5.64 cents of distributions per unit. It’s on track to meet its target of an annual distribution of 11.28 cents per unit. This will be an increase of 4% on the FY20 distribution.
The REIT provided distribution guidance of 11.73 cents per unit for FY22, which is in line with its target of 4% annual growth.
Is Rural Funds the best ASX dividend share?
It owns 67 properties across five different sectors of almonds, cattle, cropping, vineyards and macadamias. I like the diversity of this portfolio.
Almost 80% of the portfolio is leased to corporate and/or listed entities, so Rural Funds can say that it has a quality group of tenants.
In terms of the rental visibility, it has a long weighted average lease expiry profile of 11.1 years. The rental income regularly grows thanks to fixed and CPI indexation, as well as market rent review mechanisms.
The continuing distribution growth of at least 4% per unit is really attractive in this low interest rate environment in my opinion.
With a FY22 distribution yield of almost 5%, I think it’s a worthy contender for being one of the best ASX dividend shares around. However, the Rural Funds share price is a bit pricey – a 17% premium – compared its underlying value, the adjusted NAV.
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