ASX dividend shares can be really appealing to investors looking for cash flow via passive income. There are plenty of stocks with a high dividend yield, but I'm going to write about one particular name in this article: APA Group (ASX: APA).
The business is not exactly a household name. It has a huge gas pipeline across the country which transports half of the country's usage. APA owns gas storage, processing and gas-powered energy generation facilities. The business also owns electricity transmission, solar and wind assets.
There are a few compelling reasons why the ASX dividend share could be a compelling high-yield investment.
Appealing dividend yield and track record
The APA share price has declined by 16% in the last year, as we can see on the chart below.
APA already had a solid dividend yield before the drop and it has been boosted by having a cheaper valuation. For example, if a business has a 6% dividend yield and then the share price falls 10%, the yield becomes 6.6%.
The energy infrastructure giant has guided its distribution is expected to be 56 cents per security in FY24, which translates into a dividend yield of 6.4%.
APA has grown its distribution every year for the past 20 years, which is one of the best consecutive payout growth streaks on the ASX.
The estimate on Commsec suggests the business could grow its distribution to 57.5 cents per security in FY25, which would be a distribution yield of 6.6%.
Investing for growth
The ASX dividend share is benefiting from the fact that it has stable and growing revenue. Over 90% of its revenue is linked to inflation, which has obviously been elevated in recent years.
But it's not just sitting there with its existing assets. The distributions to investors are paid from cash flow, which is steadily growing as more of its projects are finished and become operational. It has a distribution payout target of 60% to 70% of free cash flow.
In the recent Macquarie Australia Conference, the business said it had a "strong pipeline" of growth opportunities between FY24 to FY26, totalling more than $1.8 billion.
Increasing energy demands
I'm not exactly sure how Australia's energy situation is going to evolve in the coming decades, but Labor recently said that gas will be part of the picture in 2050 and potentially beyond.
As a major pipeline owner, the ASX dividend share has an important role in the future of gas in the country. But it's investing in other areas too, including a growing portfolio of renewable energy generation and electricity transmission assets. APA is also investigating the potential for pipelines to carry hydrogen, though that's not a core part of the thesis for me.
Australia's energy demands are growing, with data centres expected to be a major contributor to that. This could be another help for overall energy demand.
I'm not expecting explosive growth for APA, but the business could continue to play an important part in Australia's energy mix, enabling ongoing shareholder payouts.
