If I were looking to invest into an S&P/ASX 50 (ASX: XFL) blue chip I'd want to pick one that can ride through this volatility and will continue generating good cashflow.
I wouldn't want to choose a bank like Westpac Banking Corp (ASX: WBC) or Australia and New Zealand Banking Group (ASX: ANZ). Anything related to resources or property isn't high on my wishlist either.
A share like Telstra Corporation Ltd (ASX: TLS) could be interesting, but it still faces a number of problems in the next few years because of the NBN and competition.
My pick would be:
APA Group (ASX: APA)
Infrastructure is important for keep the country running. However, in these unique circumstances we are seeing a lot less passenger traffic through Sydney Airport Holdings Pty Ltd (ASX: SYD) and I wouldn't be surprised to learn that Transurban Group (ASX: TCL) traffic is down a fair bit too.
What infrastructure share would be good in this situation? I think APA Group would be good.
APA Group owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). It owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation's natural gas usage.
People will continue needing gas during this period, particularly if they are staying home a lot more than usual. Most of us will be doing more home cooking and heating will be in higher demand.
One of the main things that I like to see from a business is that it generates pleasing cashflow and pays some of that to shareholders if it makes sense.
APA funds its annual distribution from its cashflow and has grown its distribution every year for 15 years. Before the coronavirus impact truly kicked in at the time of the report, the prediction was for an annual 50 cent distribution per unit, which amounts to a current dividend yield of 5.1% at the pre-open share price.
Foolish takeaway
One of the pleasing things about APA Group is that it continues to invest in new projects each year which will unlock more earnings in the future. I'd be happy to buy some shares with a yield of above 5%, considering how low interest rates are.
