1 ASX dividend stock down 30% to buy right now

Can this stock pipe in good returns?

| More on:
A businessman holds a bolt of energy in both hands, indicating a share price rise in ASX energy companies

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The ASX dividend stock APA Group (ASX: APA) has experienced significant pain in the last couple of years. As the chart below shows, the APA share price is down 30% from its peak in mid-2022.  

Created with Highcharts 11.4.3Apa Group PriceZoom1M3M6MYTD1Y5Y10YALL1 Jan 20222 Jun 2024Zoom ▾Jan '22May '22Sep '22Jan '23May '23Sep '23Jan '24May '24Jan '22Jan '22Jul '22Jul '22Jan '23Jan '23Jul '23Jul '23Jan '24Jan '24www.fool.com.au

When a passive income-paying business drops in value, it can unlock a much higher level of dividends for prospective investors.

For example, if a business with a 4% dividend yield suffers a 10% share price drop then yield becomes 4.4%, a fall of 20% becomes 4.8% and so on. APA has suffered an even greater decline.

There are two key reasons why APA shares look like a compelling pick to me.

Excellent asset base in high demand

APA is one of the largest owners of energy assets in Australia and as energy is essential in the Australian economy, I'd suggest it provides defensive earnings.

Its gas infrastructure includes more than 15,000km of transmission pipeline, 12,000 tonnes of LNG and 18 PJ of gas storage, and 29,500km of gas mains and pipelines to more than 1.5 million gas customers. It transports more than half of the nation's usage.

The ASX dividend stock owns a significant amount of power generation, including 342MW of wind, 311MW of solar, 39MW of battery energy storage and 884MW of gas-fired generation.

Electricity transmission is the final asset group for APA – it has more than 800km of high-voltage electricity transmission and 290km of deep-sea electricity cables.

APA continues to invest in these three areas — gas transmission, renewable energy generation, and electricity transmission — unlocking further cash flow.

The Australian federal government has recently confirmed gas is expected to play a part in Australia's energy mix to 2050 and beyond, which highlights the importance of APA's gas asset, in my opinion.

Another reason to be bullish about long-term energy demand is that new data centres may require significantly more energy in the coming years.

The ASX dividend stock's excellent record

APA has grown its distribution every year over the past two decades. Growth is not guaranteed, but APA has delivered the right balance with its cash flow between rewarding shareholders and investing for growth.

The company's growing cash flow is funding the growing payments. Pleasingly, APA says that over 90% of its revenue is linked to inflation. APA's revenue has grown during this inflationary period, and with inflation continuing to remain high, its shorter-term revenue outlook is promising.

APA expects to grow its FY24 annual distribution by 1.8% to 56 cents, which is a forward distribution yield of 6.8%. I think that's a very pleasing starting yield from the ASX dividend stock, with a high chance of further growth in the foreseeable future.  

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.

More on Opinions

Man sitting in a plane seat works on his laptop.
Opinions

Expert reveals 2 ASX stocks to sell — and 1 is a recent IPO

Toby Grimm from Baker Young shares his insights.

Read more »

An analyst wearing a dark blue shirt and glasses sits at his computer with his chin resting on his hands as he looks at the CBA share price movement today
Opinions

Expert's verdict on 3 ASX 200 shares (2 have doubled in value and the other has lost 29%)

Two of these stocks were the best performers of their sectors in FY25. Should you buy, hold, or sell?

Read more »

A male investor sits at his desk pondering at his laptop screen with a piece of paper in his hand.
Opinions

Where I'd invest in ASX shares ahead of the likely RBA rate cut

These stocks look too good to miss.

Read more »

Person pretends to types on laptop drawn in sand.
Opinions

I sold one of my oldest ASX 200 shares last week. Here's why

Why would I sell one of my longest-held stocks?

Read more »

Broker analysing the share price.
Materials Shares

Buy, hold, or sell? Broker's verdict on 3 ASX 200 materials shares

Materials was one of four market sectors that weakened in overall value in FY25.

Read more »

A person sitting at a desk smiling and looking at a computer.
Technology Shares

3 ASX 200 tech shares to buy in July: Experts

The ASX tech sector delivered outstanding returns for investors in FY25.

Read more »

A group of executives sit in front of computer screens in a darkened room while a colleague stands giving a presentation with a share price graphic lit up on the wall
Opinions

2 ASX 200 large-cap shares that this fundie is cashing in after phenomenal growth

Shaw and Partners portfolio manager James Gerrish says he knows this will be an 'unpopular call'.

Read more »

Woman and man calculating a dividend yield.
Opinions

Buy or bail? Fundie's verdict on 2 ASX 300 shares

Stuart Bromley of Medallion Financial Group provides his insights.

Read more »