After a challenging run this year, APA Group (ASX: APA) is one ASX share that could be an attractive choice for regular passive income.
When it comes to dividends, past performance is not a guarantee of the future. However, I think APA has proven itself to be a good contender of being one to continue growing its distribution each year.
The APA share price is down 27% from August 2022.
What is APA?
APA is an energy infrastructure business – it owns and/or manages a portfolio of gas, electricity, solar and wind assets.
Its huge gas pipelines around the country deliver around half of Australia's gas usage.
The company has significant electricity transmission assets, connecting Victoria with South Australia, Tasmania with Victoria, and NSW with Queensland.
Passive income record
Impressively, APA has grown its payout each year since 2004. Only Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has a longer dividend growth streak, which goes back to 2000.
It has a distribution payout ratio target of around 60% to 70% of free cash flow.
In FY23, it paid an annual distribution per security of 55 cents, which was a distribution yield of 6.3%. The yield has increased because the beaten-up ASX share is valued lower by the market.
APA has provided guidance that in FY24, it could pay a distribution per security of 56 cents per security, which is forecast to grow 1.8% year over year. If it does pay that guidance, it'd be a distribution yield of 6.4%.
Can the distribution keep rising?
In FY24, it seems the distribution can keep growing. The company has a number of drivers which could help increase its cash flow over time.
A large majority of its (fixed) revenue is indexed to inflation, so revenue is getting a boost during this period of higher inflation. APA has a high earnings before interest, tax, depreciation and amortisation (EBITDA) margin and its drawn debt is fully hedged/fixed with an average maturity of five years.
However, higher interest rates are probably a key reason for the beaten-up ASX share's decline.
APA has an organic growth pipeline of over $1.8 billion over the next three years. This can unlock more cash flow and increase the company's underlying value as completed.
In the longer term, it could become more involved in decarbonisation. The company recently announced it was acquiring a large portfolio of renewable energy assets, and the beaten-up ASX share is also looking at transporting hydrogen in its pipelines.
While there's no guarantee the APA share price will outperform, I think the business can continue to deliver attractive distributions.
