I'm sure most investors would love to own dividend stocks that offer both a high dividend yield and pleasing reliability.
Dividends aren't guaranteed and some are less resilient than others. For example, Australia's biggest ASX bank shares and ASX mining shares have all implemented dividend cuts since the onset of the COVID-19 pandemic.
I don't think we can call names like Commonwealth Bank of Australia (ASX: CBA), ANZ Group Holdings Ltd (ASX: ANZ) or Fortescue Ltd (ASX: FMG) resilient dividend stocks.
There are only two businesses on the ASX that have increased their payout every year for at least 20 years. In this article, I'll outline what APA Group (ASX: APA) does and outline my view on whether the energy infrastructure business is a good option for passive income.
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Large dividend yield
For a business to have a pleasing dividend yield, it's likely to have a generous dividend payout ratio and a valuation that's not too expensive.
APA does not trade on a high price/earnings (P/E) ratio like an ASX tech stock and it is typically quite generous with its payout ratio.
We don't know exactly what profit the business is going to generate in FY26, but it has already provided guidance.
The business expects to pay a distribution per security of 58 cents. At the time of writing, this translates into a distribution yield of 6.3%.
Considering the RBA has cut the cash rate multiple times this year, that level of yield looks very appealing.
Long-term passive income growth
APA has grown its annual payout every year since 2004, delivering two decades of continuous growth for income investors.
The dividend stock has benefited from rising demand for gas energy in Australia and globally. It has a huge gas pipeline network around Australia, transporting half of the country's usage. There are not many other businesses in Australia that can claim they're involved in half of the country's usage of an important aspect of the economy.
APA is regularly investing in its portfolio to grow its operating profit (EBITDA) and cash flow, which helps fund larger distributions over time. It has an organic growth pipeline of around $2 billion for between FY26 to FY28, which bodes well for medium-term distribution growth for investors.
The business says that more than 90% of its revenue is highly defensive, predictable and inflation-linked. APA also says that gas is required beyond 2050 to support the energy transition, which implies long-term earnings generation from its gas assets.
Is this a good time to buy the ASX dividend stock?
With the RBA cash rate lower, I believe this increases the value of the cash flow that APA generates and its distributions. It's not going to grow at a rapid pace, but I think it's appealing for investors wanting both a high level of income security and a good starting yield.
