It’s hard to find quality dividend shares that look safe right now.
Shares like Australia and New Zealand Banking Group (ASX: ANZ) and Woodside Petroleum Limited (ASX: WPL) are quite likely to cut the dividend as a result of what’s happening in the world because of the coronavirus.
But what shares on the ASX are safe? Brickworks Limited (ASX: BKW) just grew its dividend by 5% but its share price is still falling. It may be a good buy, but it may not be the most defensive business overall on the ASX.
This could be the best defensive share on the ASX:
APA Group (ASX: APA)
APA is an infrastructure business. Some of the other infrastructure businesses like Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) are suffering large traffic volume declines as well as share price declines. Not APA.
You may not have heard of APA. What is it?
APA Group owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). It owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.
No-one can say what the effects to APA will be precisely, but I think it looks like it will hold up well through this.
People will be cooking at home a lot more than they were before. It’s also coming up to winter for the colder states, so gas usage may not change that much.
One of the main things to remember during this is that interest rates in Australia are at record lows, which makes the reliable cashflow produced by APA even more valuable than before.
Another good thing is that APA’s distribution is funded by its cashflow, which keeps growing every year thanks to new projects and investments that come online. APA is continuing to invest for the long-term in new projects.
What’s the dividend yield?
APA management has previously projected that the FY20 distribution will be 50 cents per unit. This translates to a current distribution yield of 4.8%. It’s not a huge yield, but it’s solid compared to interest from the bank. It has grown its distribution every year for around 15 years.
Is it a buy?
There are other shares out there which been sold off more. So you need to decide whether you want a defensive option where the share price hasn’t fallen much but it has a pretty good yield. Or choose a share that has been sold off a lot harder and there are most risks, but it could be a better long-term opportunity.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Brickworks. 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.