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This is my top ASX50 pick for reliable earnings and dividends

Tristan Harrison
Row of industrial high pressure gas gauge meters

There are plenty of shares in the ASX50 that are considered as dividend shares.

Names like Westpac Banking Corp (ASX: WBC), Telstra Corporation Ltd (ASX: TLS), Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and Wesfarmers Ltd (ASX: WES) are thought of as dividend shares.

But some of them have cut the dividend in recent years and others are trading very expensively as investors look for yield. That makes me not want to buy them. 

But APA Group (ASX: APA) is my favoured pick for income in the ASX50. There are plenty of shares outside of the ASX50 I think would be even better like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). But, within the ASX50, I think APA could be the best.

It has increased its distribution consecutively for getting close to two decades. For FY20 the distribution guidance is 50 cents per share which is an increase of 6.4% compared to FY19, a decade ago in FY10 the distribution was 32.8 cents per share.

How has it managed to do this? It owns various pipelines around Australia and continually invests in more projects. Between FY17 and FY19 it invested $1.5 billion of capital expenditure for growth.

Whilst the company has a large focus on gas, I like that it’s growing with renewable energy investments, it’s added 275 megawatts of wind and solar generation which diversifies its earnings and creates additional earnings streams.

I also like that management aren’t afraid to explore other energy types, it’s looking at hydrogen technology and renewable methane production.

Over the next two to three years the company is expecting to invest $300 million to $400 million per annum and whilst also achieving organic growth.

In FY20 APA is expecting to grow earnings before interest, tax, depreciation and amortisation (EBITDA) by between 5.5% to 6.9%.

Foolish takeaway

APA had a distribution payout ratio of 54.8% in FY19 and it has a distribution yield of 4.6%. It’s a real long-term business with growing earnings, so I think it has good long-term potential.

The post This is my top ASX50 pick for reliable earnings and dividends appeared first on Motley Fool Australia.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited, Telstra Limited, Transurban Group, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019