Is this the best ASX dividend stock to buy for passive income?

The ASX dividend stock Rural Funds Group (ASX: RFF) has so many positives that I think dividend investors should consider it.

Rural Funds is an agricultural real estate investment trust (REIT) that owns farmland across Australia.

I'm a shareholder in the REIT and I'm planning to buy more for the following reasons.

Distribution yield

Rural Funds provides investors with a pleasing level of passive income based on its dividend yield (called a distribution yield for REITs).

I can understand why income investors are focused on the yield – because that shows how much will be paid into our bank accounts, and it's an easy way to compare businesses.

Rural Funds has provided the market with distribution guidance of 11.73 cents per unit for FY27, with a distribution payout ratio of approximately 100%.

The potential payout translates into a forward distribution yield of 6.1%. That's superior to the term deposit income on offer from banks, in my view.

Diversification

Rural Funds doesn't have much operational risk – it owns farmland and leases it to high-quality tenants. The business regularly receives pleasing rental income from tenants.

At the end of FY26, the ASX dividend stock had 57 properties across five sectors and multiple climatic zones.

Rural Funds owns almond farms, cattle farms, macadamia farms, vineyards and cropping. Those farms are spread across NSW, Queensland, Western Australia, South Australia and Victoria.

I like having exposure across a range of areas, so that's good for finding opportunities across a wider hunting ground and also reduces the risk of being exposed to one area.

Rental growth

I think the best REITs are ones with a good level of rental growth built in, even if that's just linked to inflation.

Most of Rural Funds' rental income is growing with either inflation or at a fixed annual rate, along with market reviews.

A REIT isn't likely to deliver huge growth, but the level of rental growth it has agreed with tenants is a solid rate of improvement and is helping offset the negatives of higher interest rates.

Large asset discount

As a REIT, the business owns a significant portfolio of assets.

The business had a property portfolio worth $2.05 billion at 30 June 2026 and after announced divestments, the property portfolio is now reportedly worth around $1.8 billion.

The ASX dividend stock also reported its adjusted net asset value (NAV), which includes the market value of the properties, the water entitlements, the loans, cash and other assets and liabilities into one figure which we can then compare to the Rural Funds unit price.

It reported an adjusted NAV of $3.22 per unit, so it's trading at a 40% discount to its reported underlying value. I think it's one of the leading ASX dividend shares to buy, though it's not my absolute top preference today.

The post Is this the best ASX dividend stock to buy for passive income? appeared first on The Motley Fool Australia.

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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