ASX dividend stock APA Group (ASX: APA) has suffered a significant decline in the last two years. The APA share price is down 39% from August 2022, and I think it's now very good value.
APA is one of the largest energy infrastructure businesses in Australia. Its portfolio of assets includes 15,000km of natural gas pipelines connecting sources and markets across mainland Australia. The company delivers approximately half of the country's natural gas usage.
It owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms).
Here are three factors that make me believe this ASX dividend stock is an underrated buy.
Large yield
For a share investment to be more appealing than interest from a bank, I think the dividend yield needs to be competitive with (or better than) a term deposit rate.
APA recently reported its 2024 financial year result, which included an annual distribution per share of 56 cents. That translates into a trailing distribution yield of 7.6%.
The company has provided guidance that in FY25, it will pay a distribution per security of 57 cents. That translates into a forward distribution yield of 7.75%.
Those yields are far better, in my view than the interest rates Aussie banks are offering.
Impressive growth record
Not many ASX dividend stocks have grown their dividend in consecutive years for the past decade. Only two companies have increased their dividends every year for the past two decades. Those two companies are APA and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).
APA has grown its distribution every year since 2004, and I've already mentioned that it expects to grow its annual payout in FY25, extending the record. That's a great record in my book.
Growth is not guaranteed, but the business is doing what it can to keep that record going.
Ongoing operational growth
The higher cost of debt is a headwind for the business, but there are a number of positives that can help APA's growth in the foreseeable future.
Firstly, its revenue is largely linked to CPI inflation, so this period of higher inflation is a tailwind for the business.
Secondly, APA is investing in building more energy infrastructure, including new pipelines to connect new customers or sources of supply. This is a significant method of unlocking more cash flow for the business. More cash flow translates into bigger distributions.
Thirdly, the company has made acquisitions recently relating to electricity transmission, renewable energy generation and storage.
When we put all of these elements together, the ASX dividend stock is able to grow revenue and invest for growth while still increasing its annual distribution.
