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Here’s why the APA (ASX:APA) share price could be a top dividend share

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The APA Group (ASX: APA) share price could be a leading ASX dividend share idea for income.

What does APA do?

APA says that it has 15,000 kilometres of natural gas pipelines connecting sources of supply and markets across mainland Australia.

It operates and maintains networks connecting 1.4 million Australian homes and businesses to natural gas. It owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms).

In total it owns or manages and operates a portfolio of assets of around $22 billion and delivers half the nation’s natural gas usage.

ASX dividend share credentials

One of the first things that investors may want to know about is the dividend yield.

In FY21, APA paid a distribution of $0.51 per unit. That equates to a trailing yield of 5.2%.

But the business is expecting to grow the distribution by another 3.9% in FY22 to $0.53 per unit. That translates into a forward yield of 5.4% at the current APA share price.

But there’s more to APA’s distribution than just the yield. It has grown its distribution every single year for more than a decade and a half. That’s one of the longest growth streaks on the ASX.

How does it keep growing its distribution?

The business funds its distribution from its cash flow.

In the recent FY22 half-year result, the free cash flow increased by 22.6% to $515.1 million thanks to higher earnings before interest, tax, depreciation and amortisation (EBITDA), lower interest costs and lower tax payments.

The ASX dividend share grows its cash flow by expanding its asset base and finishing projects.

APA currently has an organic growth pipeline that now exceeds $1.4 billion. In gas infrastructure, that includes the East Coast grid expansion, the Northern Goldfields interconnect and the Kurri Kuri lateral pipeline.

The business is also working on some electricity and renewables projects such as the Gruyere hybrid energy microgrid and Mica Creek solar farm.

Another investment that could have an influence on the APA share price is Basslink. The Basslink is the cable that connects Tasmania with the mainland. The business has bought 100% of Basslink’s senior secured debt at a discount to the face value.

APA intends to work with the receivers and managers, as well as Hydro Tasmania and the State of Tasmania, to put Basslink on a stable footing and convert it into a regulated asset. APA says that this provides a platform for further growth in adjacent energy opportunities.

Is hydrogen part of APA’s future?

APA is working on future energy technologies, playing its part in Australia’s energy transition. The Parmelia gas pipeline hydrogen project proposes a 100% hydrogen conversion of a section of the existing pipeline in WA. Phase 2 is underway, with lab testing of the pipeline materials in gaseous hydrogen conditions.

It’s also doing a feasibility study into the development of a large-scale renewable hydrogen project in Central Queensland with exports to Japan.

APA share price target

Ord Minnett currently has a price target on APA of $10.50, though the rating is currently a ‘hold’. The broker thinks that coal power plant closures will mean that gas will continue to play an important part in the overall system.

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