How big is the APA dividend yield going to be in 2022?

The infrastructure giant is expected to deliver a sizeable dividend this year.

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Four ASX dividend shares investors stand in a line holding cash fanned in their hands with thoughtful looks on their faces wondering what the APA share price will do today and how big the APA dividend yield will be in 2022

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Key points

  • APA is expected to have a 4.6% dividend yield in FY22
  • The business is benefiting from the higher rate of inflation
  • APA is working on a number of projects to grow its portfolio of assets and increase cash flow

APA Group (ASX: APA) is expected to increase its dividends in 2022. But how large is the dividend yield going to be?

APA is one of the largest infrastructure businesses on the ASX with a market capitalisation of $13.5 billion.

It has a number of different assets in the energy industry. It has more than 15,000km of natural gas pipelines which transport more than half of the nation’s natural gas usage. It also has assets across wind farms, solar farms, gas power stations, and gas storage.

At the time of writing, the APA share price is $11.47, up 0.044% today.

APA dividend expectations

APA funds its dividend from the cash flow that it generates each year.

In the FY22 half-year result, the business reported 4.3% revenue growth, 4.5% underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) growth, and free cash flow growth of 22.6%.

APA decided to increase its interim dividend by 4.2% to 25 cents per security. The business has increased its dividends every year for the past decade and a half.

Management has provided guidance for the annual FY22 distribution. It’s expected to be 53 cents per security, which would represent an increase of 3.9%.

How much would this be in yield terms? At the latest APA share price, the gas infrastructure business has a projected dividend yield of 4.6%.

How does APA keep growing its dividend?

APA is benefitting from two factors that are helping it grow its cash flow.

APA says that it is “favourably exposed to rising inflation with almost 100% of contracted revenues linked to inflation indices”.

Inflation is increasing around the world, including in Australia. The latest inflation release showed that for the 12 months to 31 March 2022, inflation was 5.1%.

Another way that APA can grow its cash flow is by expanding its asset base of energy investments. It can do this through acquisitions or by building them itself.

The organic growth pipeline is now worth more than $1.4 billion. Some examples of that include the East Coast grid expansion, which will increase winter peak capacity by up to 25% through a two-stage expansion for a capital investment of $270 million.

Another example is the Northern Goldfields interconnect, which is a new 580km pipeline that increases capacity to the Goldfields region, for a capital investment of about $460 million.

It’s also growing its investments in the renewable energy space. For example, the Mica Creek solar farm is an 88MW project with a capital investment of $150 million.

APA is also planning for the long term. It is looking at the potential for some of its pipelines to be used for hydrogen, or for gas to be blended with hydrogen.

How big could the dividend yield get in future years?

According to Commsec, APA is projected to have a dividend yield of 4.9% in FY23 and 5% in FY24 at the current APA share price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. 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 APA 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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