A 5.8% yield and 30% undervalued — time for me to buy this ASX 300 passive income star?

Most investors would do a double-take if they saw an ASX 300 dividend share trading at a yield of almost 6% today. After all, most popular passive income picks on the ASX currently sport yields far lower than that.

You won’t get anything close to 6% from the likes of Telstra Group Ltd (ASX: TLS), Coles Group Ltd (ASX: COL), Wesfarmers Ltd (ASX: WES) or Commonwealth Bank of Australia (ASX: CBA) right now.

Yet that’s what’s apparently on offer from Rural Funds Group (ASX: RFF) shares right now.

Yep, this ASX 300 real estate investment trust (REIT) currently trades on a yield of 5.81%.

That yield stems from the four quarterly dividend distributions that this REIT has doled out over 2025. Each one of those quarterly dividend distributions was worth 2.93 cents per unit. That annual total of 11.72 cents per unit gives Rural Funds that trailing yield of 5.81% at the present (at the time of writing anyway) unit price of $2.02.

What’s more, this ASX passive income stock seems to be trading at a steep discount to its underlying value.

Rural Funds periodically reports the net tangible assets (NTA) per unit for the benefit of investors. In other words, that’s how valuable its property portfolio is on a per-unit basis. Bear in mind that, as Rural Funds is an agricultural-based REIT which owns vast tracts of diverse farmland, these assets can be more difficult to put a value on than publicly-traded shares.

Even so, Rural Funds told investors in August that its NTA per share was $3.08 on adjusted terms. That’s as of 30 June 2025.

At the current $2.02 unit price, this implies that this ASX 300 share is currently trading at a 30% discount to the value of its underlying portfolio.

So is this ASX 300 REIT a buy for passive income?

Looking at Rural Funds, I think this passive income stock has what it takes to be a useful investment for anyone who prioritises seeing maximum dividend income from their portfolio. Rural Funds has never cut its dividend distributions since listing in 2013, and obviously offers that hefty 5.8% yield today (although investors should remember that no yield is ever in the bag).

Having said that, Rural Funds’ dividends don’t usually come with much in the way of franking credits, as is typical of most REITs.

As a REIT, Rural Funds’ unit price is highly impacted by interest rates, though. That would explain why investors have seen the value of their units drop more than 20% over the past five years. As such, I wouldn’t expect much in the way of capital appreciation going forward. Particularly if interest rates have already bottomed this cycle.

As I am not a solely dividend-focused investor, I won’t be buying this passive income stock anytime soon. But I would recommend it to anyone who does want to maximise their cash flow as part of a diversified dividend portfolio.

The post A 5.8% yield and 30% undervalued — time for me to buy this ASX 300 passive income star? appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has positions in Wesfarmers. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Rural Funds Group and Telstra Group. The Motley Fool Australia has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.