Receiving passive income distributions is a wonderful way to enjoy the fruits of our investments because we don't need to do any work to generate the payments.
The passive income keeps flowing to our bank account, and the investment can hopefully grow earnings. One ASX dividend stock that could help unlock over $500 of income from a $7,000 investment is APA Group (ASX: APA).
Why this ASX dividend stock?
Many other well-known dividend stocks on the ASX, like Commonwealth Bank of Australia (ASX: CBA) and JB Hi-Fi Ltd (ASX: JBH), have seen their share prices soar this year.
That's great for investors who already own shares in these companies but makes it harder for possible new investors. High prices push down the dividend yields of these ASX dividend stocks and the price/earnings (P/E) ratio has been sent upwards.
I'd rather invest in businesses where the valuation and dividend yield makes sense for income investors.
APA is one of the most impressive ASX dividend stocks, in my opinion, for several reasons. Let's take a look.
Excellent distribution growth record
Very few ASX shares have grown their annual payout to shareholders every year since before the Global Financial Crisis in 2008. A payout that grows each year is pleasing because it helps investors offset inflation and can help build wealth. It's also a good sign that the business has grown its earnings over the long term.
APA's large and growing asset base, which includes an impressive national gas pipeline that transports half of the country's usage, is an essential asset for Australia and its shareholders.
The increasing demand for energy has enabled APA to lift its distribution every year since 2004, one of the longest growth records on the ASX.
This growth streak isn't guaranteed to continue forever, but the ASX dividend stock has guided that it's expecting to hike the payout again in FY25.
High yield can unlock over $500 of passive income from $7,000
It's understandable why many investors are looking for a high dividend yield because they want their portfolios to deliver a pleasing source of passive income cash flow.
However, aiming for a dividend yield that's too high could be risky because the business may not be investing for growth, or a dividend cut may be likely.
APA has already demonstrated its focus on growing cash returns for shareholders and has a track record of investing in new assets to help grow its operating cash flow for investors. For example, it recently acquired a large renewable energy, electricity transmission, and battery storage facility in the Pilbara region for $1.7 billion.
The company has guided that it's growing to increase its annual distribution by 1.8% year over year in FY25 to 57 cents per security.
At the current APA share price, the ASX dividend stock could pay a distribution yield of approximately 7.75% in FY25. That means, with a $7,000 investment today, investors could receive $542 of annual passive income in FY25 and more income in the subsequent years, depending on how much APA grows its distribution.
