Is the AGL Energy (ASX:AGL) share price a buy for its 4.8 per cent franked dividend?

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The AGL Energy Ltd (ASX:AGL) share price has had a tough last 12 months, falling 15.5 per cent to $22.23 in the last year. By comparison, the S&P/ASX 200 Index has gained 8.3 per cent in the same time.

AGL Energy has a diverse power generation portfolio including base, peaking and intermediate generation plants, spread across traditional thermal generation as well as renewable sources including hydro, wind, landfill gas, solar and biomass.

In February, AGL Energy reported first half underlying profit increased by 27 per cent to $493 million, with earnings per share jumping 30 per cent higher to 75.2 cents.

The AGL interim dividend was raised by 32 per cent to 54 cents per share, 80 per cent franked.

For the year ending June 30th 2018,  AGL said it continues to expect underlying profit in the middle of the range of $940 million to $1.04 billion.

AGL Energy dividend

The AGL dividend jumped significantly higher last year, with this year’s dividend set to jump even higher.

Source: ASX

On a trailing basis, AGL shares trade on a 80 per cent franked dividend yield of 4.7 per cent, or 6.3 per cent when grossed up for franking credits.

AGL Energy is a sector monster, capitalised at $14.3 billion.

As such, and given the regulated and capital intensive nature of its industry, growth going forward is likely to be relatively modest, something that’s already incorporated into the company’s valuation. AGL Energy shares trade at around 14 times forward earnings.

AGL’s policy is to target a dividend payout ratio of 75 percent of annual underlying profit after tax.

The AGL dividend yield is relatively attractive, especially given interest rates are likely to remain at these current low levels well into 2019. 

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Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au