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Key points
- AGL has long been known as a dividned heavyweight
- This company had a dreadful year last year, losing 48% in 2021
- Is AGL's 9% dividend too good to be true?
Watchers of the AGL Energy Limited (ASX: AGL) share price over the past few years would know that this is a company that hasn't exactly been a great investment during that time.
One of the largest energy generators and retailers in the country, AGL shares have been having an awful time of it lately. Since last peaking in 2017 at close to $28 a share, AGL has been in a steady decline ever since. 2021 saw this company lose 48% of its value alone, and saw the company reach a new 52-week low of just $5.10 a share back in November.
While that means, at today's pricing of $7.33 a share (at the time of writing), AGL is now more than 40% above those lows, we still can't forget that longer-term shareholders are likely down in a significant way on their investment. But 2022 is a new year, so let's look forward and not back. So what might 2022 hold in store for AGL? Is the company's near-9% trailing dividend yield really on the table?
Is AGL really offering a 9% dividend yield today?
Well, let's start by uncovering where that yield figure comes from. So AGL paid out three dividends last year. The first was an interim payment of 31 cents a share that was doled out in March. That was supplemented by an additional 10 cents per share special dividend, paid out at the same time. Then, the company distributed its final dividend of 34 cents per share back in September. None of these payouts came with franking credits.
Those ordinary dividends combine to give AGL a trailing yield of 8.88% on current pricing. Factoring in the special dividend as well, and the trailing yield hits 10.25%.
But we shouldn't really factor in the special dividend, as it was part of AGL's since-wound-up 'special dividend program' that was supplanted by the company's demerger plans. This program aimed to temporarily bump up AGL's underlying profits after tax payout ratio policy from the current 75% to 100% over FY2021 and FY2022.
So AGL is still committed to this 75% payout ratio policy. Thus, its dividends over 2022 (until at least the demerger goes through) should be contingent on what kind of profits AGL can pull in. Unfortunately, that picture isn't looking too bright, going off what the company itself has said.
2022 could see the dividend belt tighten…
So FY2021 resulted in AGL reporting $537 million in underlying profits after tax. But in the release of its full-year results for FY21 last year, AGL also issued guidance for FY2022. And this revealed that the company is only expecting to pull in between $220 and $340 million in profits after tax. That represents a 36.7%-59% drop in underlying profits year on year. Thus, if these predictions prove accurate and AGL keeps its dividend payout policy consistent, investors can arguably expect a 36.7%-59% drop in their dividends for FY22.
A 59% drop in AGL's dividend would roughly equate to an annual payout of 26.5 cents per share. That would give AGL shares a hypothetical forward yield of approximately 3.62% on current pricing. That's not objectively a terrible yield, but it is certainly nothing close to the near-9% trailing yield currently on display.
No doubt shareholders will be hoping that the company can pull a rabbit or two out of its hat and put up something better. But we'll have to wait and see what happens.
At the current AGL Energy share price, this company has a market capitalisation of $4.82 billion.
