One of the leading S&P/ASX 200 Index (ASX: XJO) dividend shares could be a top pick for passive investment income for years to come. I'm talking about APA Group (ASX: APA) shares.
With so much uncertainty and volatility amid high inflation and rising interest rates, it's difficult to predict how resilient some dividends are going to be in 2023 and beyond.
There are plenty of retailers that could see lower profits and dividends in FY23. Some ASX resources shares could also see a dividend drop.
While dividends are not guaranteed, I think there are a few names that could pay a larger dividend next year and in future years.
I think the ASX 200 dividend share APA could be a robust pick. Interestingly, the APA share price has gone up 8% in 2022 to date, despite many other ASX shares feeling some pain.
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What it does
APA says that it has around 30,000 km (and growing) of natural gas mains and pipelines, connecting sources of supply to markets across mainland Australia.
It operates and maintains gas networks that connect 1.4 million Australian homes and businesses to natural gas.
The business owns, or has interests in, gas storage facilities, gas-fired power stations, and renewable energy generation (wind and solar).
Dividend credentials
APA is one of the few ASX 200 dividend shares that grew its shareholder payout during COVID-19.
The gas infrastructure business funds its distributions from the cash flow that is generated. APA is looking to generate more cash flow as it builds more pipelines. It invested over $500 million in growth projects in FY22.
Two key projects include the $270 million spend on stage 1 and stage 2 expansion of the east coast grid, which the company says "will help address forecast winter gas shortfalls as well as facilitate the firming on renewables" and the $460 million Northern Goldfields Interconnect.
APA has grown its distribution every year for the past decade and a half. It's expecting to grow its payout by another 3.8% to 55 cents per security. APA recently grew its interim distribution by 4% to 25 cents per security.
This works out to be a forward distribution yield of 5% from the ASX 200 dividend share.
Increasing investment in non-gas assets
Looking ahead beyond 2023, I think APA is doing the right thing by investing in things like renewable energy, such as the Mica Creek solar farm. Another example is the Gruyere solar farm and battery storage.
APA said that greater policy certainty is now providing opportunities for APA to invest in electrification, renewables, and new energy technologies.
The business also recently announced it was going to acquire Basslink for $773 million. Basslink owns and operates the 370km high voltage direct current electricity connector between Victoria and Tasmania.
The acquisition will include contracts in place with Hydro Tasmania and the State of Tasmania to provide "predictable revenues whilst APA works to convert Basslink to a regulated asset".
Potential for hydrogen
APA is looking to future-proof its business by investigating whether its pipelines can be used to transport hydrogen, particularly a blend of hydrogen and gas.
The ASX 200 dividend share is working on a number of hydrogen-related projects including phase 2 of the Parmelia gas pipeline hydrogen project. It's also working on feasibility studies for the Central Queensland hydrogen project and the mid-West blue H2 and carbon capture and storage (CCS) project.
If it's successful in making its gas pipelines suitable for hydrogen, then it can extend the life of its assets for longer.
