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Dividend report card: APA Group

The APA Group (ASX: APA) is a leading energy infrastructure business that has been a top dividend stock over the last 10 years which makes it an ideal candidate for income investors looking for potential investments to analyse.

Here are its key metrics:

  • Dividend yield. APA Group has a 20% franked dividend yield of 5.1% compared to a market average of 3.8% and a sector average of 5%. Its peers AGL Energy Ltd (ASX: AGL) and AusNet Services  (ASX: AST) have dividend yields of 3.7% (80% franked) and 5% respectively.
  • Dividend payout ratio. APA Group has a dividend payout ratio of 205% i.e. 205% of its FY 2017 profits were paid out as a dividend. This is quite high and raises concerns about the sustainability of its dividends. AGL in comparison has a dividend payout ratio of 113%.
  • Dividend growth rate. APA Group has an average 5-year dividend growth rate of 5.4% and a 10 year dividend growth rate of 4.9%. AGL in comparison has superior 5 year and 10 year growth rates at 9.2% and 7% respectively.
  • Dividend stability. APA Group has a dividend stability of 99.9% which is slightly higher than the sector average of 97.8%.
  • Valuation. APA Group has a PE ratio of 39 which is higher than the sector average of 26 and the market average of 17. AGL’s PE ratio in comparison is 20. AGL’s price to earnings growth ratio of 0.40 also suggests a more conservative valuation compared to APA Group’s 10.74 and the sector average of 4.33.
  • Future prospects. APA Group’s status as Australia’s largest provider of gas infrastructure like pipelines and distribution centres provides it with a massive competitive advantage and significant barriers to entry in the future.

Overall, whilst APA Group’s wide moat makes it attractive, the fundamentals suggest that AGL Energy might be a better prospect going forward. Top broker Goldman Sachs also rate AGL as a ‘buy’ given their forecast of a rebound in the wholesale electricity forward curve.

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Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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