APA Group Ltd (ASX: APA) is usually described as somewhat boring: defensive, a consistent earner, but also a dividend champion.
After two years of steady decline, APA's share has finally found its mojo. In the past 12 months the share price has soared almost 40% to $9.35 at the time of writing.
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Australian backbone of gas supply
APA Group is a mainstay for investors seeking stability and income. The company's resilience stems from its dominant position in Australia's gas infrastructure network. The company owns, manages and operates a $27 billion portfolio of gas, electricity, solar, and wind assets.
APA operates as the backbone of the gas supply chain, transporting energy from production fields to major cities and industrial users. The network includes an impressive 15,000 kilometres of pipelines, gas storage and processing facilities.
Regulated, less volatile returns
APA's business model relies on long-term contracts and regulated returns rather than being exposed to volatile gas prices. This ensures a relatively predictable cash flow. The company is also active in energy renewables with investments to develop ways to allow existing pipelines to transport hydrogen and other low-emission gases in the future.
The energy share may have made up some ground in the past twelve months. However, it's still 20% lower than what it was in 2022 when it was hovering around $12.
APA's two-year struggle was largely caused by large debts, combined with high interest rates. There were also some mixed views on the sizeable, 'overpriced' takeover of Alinta Energy Pilbara, for which APA had to raise $750 million in capital.
No potential share gains, but higher dividends
The current rally may have reached its peak. Analysts generally view APA as a solid, but slow-growth stock. Some brokers see potential growth from hydrogen projects, but they expect a modest increase in earnings. Most analysts have downgraded their recommendations to neutral and don't expect more upside.
The good news is that when it comes to reliable income and steady growth, few ASX dividend shares can match the record of APA. It has managed to increase its dividend payouts annually for over 20 years.
Analysts at Macquarie Group Ltd (ASX: MQG) believe this trend will continue for the foreseeable future. According to a recent note, the broker is forecasting a 1.8% increase to 58 cents per share in FY 2026, in line with the board of APA's guidance, followed by another increase to 59 cents per share in FY 2027.
Based on its current share price of $9.35, this equates to dividend yields of 6.2% and 6.3%, respectively. Those yields are significantly better than the market average of approximately 4%.
