1 ASX dividend stock down 28% I'd buy right now

This stock is a powerful pick for passive income.

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The ASX dividend stock APA Group (ASX: APA) has suffered a 28% decline from the peak in 2022. A decline can be very beneficial for prospective investors' dividend yield, so this could be a good time to invest. The below chart shows the volatility the business has experienced in the last few years.

I'll give you an example of how the dividend yield can be affected. If a business starts with a dividend yield of 5% and the share price falls 10%, the yield becomes 5.5%. If it fell 20%, then the dividend yield becomes 6%, and so on. This is what has happened with the ASX dividend stock.

For investors interested in APA shares, this looks to me like a good time to invest. APA transports almost half of the nation's gas usage with its gas pipelines, it also has gas processing, storage and gas-powered energy generation.

It also has a number of electricity-related operations, including electricity transmission assets that connect Victoria with South Australia, Tasmania with Victoria and New South Wales with Queensland. APA also owns wind farms and solar farms.

Firstly, I'll talk about the passive income potential of the business.

ASX dividend stock ticks the income box

For investors focused on income, the business has grown its annual distribution every year since 2004. There's only one business on the ASX that has a longer-term record than that.

Not only that, but the business has a very attractive distribution yield.

The ASX dividend stock is expecting to grow its FY25 distribution by 1.8% in FY25 to 57 cents, which would represent a forward distribution yield of 6.6%.

These payouts are funded by the business' cash flow, which has grown over the years. I think that cash flow can continue rising for a couple of key reasons.

Rising operating profits

For starters, a vast majority of the business' revenue is linked to inflation, which is a useful organic tailwind for the topline of its finances.

APA says that demand for gas is forecasted to be strong up to and beyond 2050, thanks to the electrification of the economy, including AI and data centres. The ASX dividend stock suggests this calls for more flexible supply and storage to meet seasonal and peak demand.

The Australian Energy Market Operator (AEMO) is forecasting that there could be 2.1x growth in gas-powered energy generation, which underpins existing pipeline capacity and could drive further growth.

APA is looking to steadily expand its East Coast gas grid to meet customer demand while delivering "strong returns" for investors.

Additional APA capacity for north-to-south supply, coupled with other expansions across the grid, is expected to meet AEMO's annual forecast gas supply shortages in southern markets.

The ASX dividend stock says it has ample capacity to fund the $1.8 billion growth pipeline over FY25 to FY27.

I think it can continue piping in solid passive income investors for many years to come.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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