The ASX dividend stock APA Group (ASX: APA) may not be the most famous business, but it has several attractive features for investors.
I'd prefer to own APA for passive income over Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG) and Woodside Energy Group Ltd (ASX: WDS).
All of those businesses have their positives, but I'm particularly interested in the combination of what APA can provide.
Before I get to the business's appeal, let's look at what the ASX dividend does.
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What the ASX dividend stock does
APA Group owns and operates gas transmission pipelines and interconnected grids spanning mainland states and territories. It also manages and operates local distribution networks that deliver gas to households and businesses in five states and territories.
APA has investments in gas-fired power generation and microgrid assets around Australia.
The business has several operational renewable assets across Australia and other projects under development. Its main focus is on wind and solar farms. It also has battery energy storage systems (BESS).
Finally, APA Group also owns several electricity transmission assets around Australia.
Dividend yield
One of the most appealing elements of any ASX dividend stock is the size of the passive income it can provide investors.
Compared to the business's market capitalisation, its payouts equate to a pleasing distribution yield.
The business has guided that its FY25 distribution will be 57 cents per security, along with underlying operating profit (EBITDA) of between $1.96 billion and $2.02 billion. At the current APA share price, its FY25 distribution equates to a distribution yield of 6.9%.
That's a great starting point for an ASX dividend stock, in my view, and it has a track record of delivering dividend growth for investors.
Growth record
There is no guarantee a business will grow its payout in any given year or pay a dividend at all.
Of all the businesses on the ASX, APA Group is one of the ones I'm most optimistic will grow its distribution in the next financial year. The company has increased its distribution in consecutive years for two decades. It has the second longest unbroken annual dividend growth streak on the ASX.
Most ASX businesses cut their dividend during the GFC and/or the COVID/inflation periods. APA grew its distribution through both of those periods.
Compelling long-term outlook
Can APA Group continue its growth run? I believe so.
For starters, energy is a vital service for households and businesses. I don't think that's going to change over the long term. The current government has outlined that it expects gas to play an essential part in the national energy mix for decades to come.
APA's revenue from its existing asset base continues to grow as most of it is linked to inflation, which generally means regular annual revenue growth.
The ASX dividend stock regularly expands its asset base through acquisitions of other assets and building its own energy assets, growing its earnings base. As APA's cash flow grows, this will help fund larger distributions, making it a very appealing investment.
