I recently decided to invest in AGL Energy Ltd (ASX: AGL) shares because I'm optimistic about the energy company's long-term future. Why?
Well, I don't know how the Australian or global economy will perform in the foreseeable future. I'm also not sure what stock markets will do.
But, if a business can deliver growing earnings, then it could also see a rising share price and an increasing dividend. That's why I'm always looking for defensive ASX shares that can deliver growing earnings.
And that's what I'm hoping and expecting from AGL shares in the next three or four years.
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Long-term earnings growth
We're already into the 2025 financial year, so let's be forward-focused and look at this year's earnings expectations.
Broker UBS has projected that the ASX energy share can make $702 million of net profit after tax (NPAT) in FY25. The broker thinks there will be "structurally higher whole electricity prices", reflecting a "slower build-out of renewable and transmission capacity".
Its long-term price assumption for wholesale electricity prices is $90MW per hour.
UBS also thinks AGL's NPAT can grow at a compound annual growth rate (CAGR) of 9% between FY26 and FY29. And it predicts that AGL could generate $828 million of NPAT in FY27 and $887 million in FY28.
According to those projections, the current AGL share price is valued at just over 8x FY27's estimated earnings and just under 8x FY28's estimated earnings.
Growing dividend
AGL is predicted to pay an annual dividend per share of 58 cents in FY25. This could grow to 62 cents per share in FY26, 77 cents per share in FY27, and 82 cents per share in FY28.
Excluding the potential franking credits, the dividend yield could be 7.5% in FY27 and 8% in FY28.
I'm not focused on dividend returns with this investment, but I think they could give the returns a real boost.
Useful tailwinds
AGL can benefit from Australia's rising energy demand from growth areas like artificial intelligence (AI), data centres, and electric vehicles.
The Australian Financial Review reported that data centres already consume 5% of Australia's electricity. Their expected expansion could more than double capacity by 2030, going from 1,050MW to 2,500MW, which would mean growth of 13% per annum.
If energy demand keeps rising, this could lead to higher energy prices and stronger AGL profits in the long term. That's promising for a business with a low projected earnings multiple, in my opinion.
