Over the past 10 years AGL Energy Limited (ASX:AGL) has been paying dividends to shareholders. The company is currently worth AU$14b, and now yields roughly 5.3%. Should it have a place in your portfolio? Let’s take a look at AGL Energy in more detail.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does AGL Energy pass our checks?
AGL Energy has a trailing twelve-month payout ratio of 61%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 77% which, assuming the share price stays the same, leads to a dividend yield of 5.2%. However, EPS is forecasted to fall to A$1.37 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of AGL it has increased its DPS from A$0.53 to A$1.18 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, AGL Energy produces a yield of 5.3%, which is high for Integrated Utilities stocks but still below the market’s top dividend payers.
Considering the dividend attributes we analyzed above, AGL Energy is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for AGL’s future growth? Take a look at our free research report of analyst consensus for AGL’s outlook.
- Valuation: What is AGL worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AGL is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.