Sold-off ASX dividend stocks can make great investments if sustainable passive income continues flowing and earnings can grow in the foreseeable future. I think APA Group (ASX: APA) fits that description.
As we can see on the chart below, the energy infrastructure business has been through a rough period.
Since August 2022, the APA share price has dropped more than 40%. Not many S&P/ASX 200 Index (ASX: XJO) shares have fallen as much as that over the last two or so years.
So, when a business with vital assets like APA drops that much, it looks very interesting to me. For starters, an asset-based business like APA has an important balance sheet that can't be easily replicated or replaced.
Let's run through what the business actually owns.
APA's appealing asset base
APA is involved with a variety of energy assets.
The company owns 15,000km of gas pipelines connecting sources of supply and markets across mainland Australia. It supplies half of the country's usage, operating and maintaining networks that connect 1.4 million Australian homes and businesses to gas.
APA also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation, both wind and solar farms.
The business also has a growing portfolio of electricity transmission assets, including the Basslink Interconnector, which transmits electricity between Tasmania and Victoria (in either direction).
Compelling ASX dividend stock
The company has grown its distribution per security every year since 2004, which is one of the longest growth streaks on the ASX.
For FY25, APA has provided guidance that it's expecting to grow its distribution by another 1.8% to 57 cents per security. At the current APA share price, that represents a distribution yield of 8.4%.
Obviously, earnings growth is also important to help maintain and grow APA's payouts.
In FY25, the company expects underlying operating profit (EBITDA) to grow by between 3.5% to 6.7% to a range of $1.96 billion to $2.02 billion.
The business is benefiting from a few different factors. Firstly, a large majority of its revenue is linked to inflation, so it's experiencing regular income growth.
Second, the business is investing in constructing new assets, such as new pipelines, to help grow its cash flow. The business pays its distributions from cash flow, so each newly completed project can unlock a distribution boost.
Thirdly, APA occasionally makes acquisitions to increase its asset portfolio. For example, in recent times, it has bought Alinta Energy Pilbara and the Basslink Interconnector.
Overall, I think the ASX dividend stock can slowly but surely grow its distributions and expand its asset base. However, it's not likely to be a high-flyer, in my view.
