Why APA Group offers dividend investors a 5.3% yield plus franking credits

The APA Group (ASX: APA) share price traded flat at $8.72 today after the gas transporter reconfirmed its guidance for financial year 2019 in the wake of the government flagging that it would reject its proposed $13 billion takeover by Chinese investment group CKI Investments.

The proposed deal valued APA Group at $11 per share when announced in June 2018 at a roughly 30% premium to its then market value and today’s share price.

Many of APA’s shareholders will be disappointed therefore at the federal government’s decision to knock back the bid seemingly on national security grounds. Recently the government also blocked Chinese telecommunications infrastructure business Huawei from bidding to build the national infrastructure required to provide super-fast 5G telecommunication and internet networks.

The takeover refusal though does give investors to potentially pick up shares in the defensive APA Group that is still forecasting dividend payouts totalling 46.5 cents per share in FY 2019 plus “any available allocation of franking credits”.

This would place the shares on a yield of 5.3% plus the benefits of any franking credits, which is reasonable compared to the kind of returns available from a term deposit at the Commonwealth Bank of Australia (ASX: CBA).

Not only does APA offer a pretty juicy dividend but it also offers investors in the SMSF stage or looking to retirement some very reliable earnings streams.

This is because APA operates dominant gas transportation pipelines in Australia that are highly regulated and almost impossible for competitors to cut in on due to the vast capex required and regulatory restrictions.

Given that demand for gas is almost certain to remain strong throughout any investor’s lifetime the group’s dividends can be considered pretty reliable.

APA also flagged today that it continues to plan to invest up to $300 million to $400 million per annum from FY2020 onwards. APA reports that it sees “in excess” of $2 billion of Australian gas transport prospects ahead.

The group has managed to grow its dividend from 42.5 cents per share in 2016 to 46.5 cents per share estimated in 2019 and as such for long-term dividend investors it could remain a decent bet.

Motley Fool contributor Yulia Mosaleva owns shares of Commonwealth Bank of Australia. 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 Scott Phillips.

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