We're in the thick of reporting season, and I'm seeing some solid results that make me believe some S&P/ASX 200 Index (ASX: XJO) stocks are high-quality long-term options to buy this month.
Businesses that are undervalued by the market can make excellent investments because of their capital growth potential as well as the possibility for good passive income if they are dividend payers.
I'm already a shareholder in one of the businesses below, and the other one looks appealing as well. The long-term prospects for these two ASX 200 stocks look compelling.
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AGL Energy Ltd (ASX: AGL)
The ASX 200 energy share is one of the largest energy players in the domestic market. In FY24, total AGL customer services increased by 211,000 to 4.5 million.
Profitability increased significantly during FY24, with underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increasing 63% to $2.2 billion and underlying net profit after tax (NPAT) rising 189% to $812 million. The AGL annual dividend close to doubled to 61 cents per share.
However, FY25 is expected to show a reduction in profit, with underlying net profit expected to fall to between $530 million and $730 million.
I'm optimistic about the ASX 200 stock for several reasons. First, it keeps growing its customer numbers, which is a good sign of customer loyalty and can deliver scale advantages.
Second, the ASX 200 share is investing heavily in the transition, including another $250 million in a development pipeline of 8.1GW across batteries, solar and wind projects. I think this makes sense because Australia needs energy during times when the sun is not shining and the wind is not blowing. It could give AGL the ability to sell stored energy at a higher price.
Third, the AGL dividend is growing and the company is expecting to start partially franking dividends in FY25, which can boost shareholder returns. The current unfranked dividend yield is 5.3%, which I think is solid. If it were fully franked it would be a grossed-up dividend yield of 7.5%.
Telstra Group Ltd (ASX: TLS)
Telstra is Australia's leading telecommunications ASX 200 share and continues to deliver pleasing numbers.
In the FY24 result, Telstra reported adding more than 560,000 net new handheld customers and growing average revenue per user (ARPU). Mobile services revenue increased by 5.6%, postpaid handheld ARPU increased by 3.3%, and prepaid handheld ARPU increased by 3.8%. With Telstra's network leadership, I think it can keep growing its subscriber numbers.
The ASX 200 stock delivered total underlying revenue growth of 1% to $23.4 billion, underlying EBITDA growth of 3.7% to $8.2 billion and underlying NPAT growth of 7.5% to $2.3 billion. Reported NPAT declined 12.8% to $1.8 billion amid the telco's cost cuts to improve its enterprise business.
In FY25, it's expecting underlying EBITDA to increase between 3.6% and 6.1%, to a range of $8.5 billion to $8.7 billion. Due to Telstra's operating leverage, I think the NPAT can grow faster than the underlying EBITDA in the coming financial years. This profit growth can also fund future dividend growth.
It offers an FY24 grossed-up dividend yield of 6.5%, and rising profit could help send the ASX 200 stock higher over time.
