There is a lot to be liked about AGL Energy Limited (ASX:AGL) as an income stock. It has paid dividends over the past 10 years. The company currently pays out a dividend yield of 6.5% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether AGL Energy should have a place in your portfolio.
5 questions I ask before picking a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has the amount of dividend per share grown over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does AGL Energy fare?
The current trailing twelve-month payout ratio for the stock is 48.4%, which means that the dividend is covered by earnings. Going forward, analysts expect AGL’s payout to increase to 76.4% of its earnings, which leads to a dividend yield of 6.2%. However, EPS is forecasted to fall to A$1.56 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of AGL it has increased its DPS from A$0.53 to A$1.26 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. This is an impressive feat, which makes AGL a true dividend rockstar.
Compared to its peers, AGL Energy has a yield of 6.5%, which is high for Integrated Utilities stocks.
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, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three fundamental factors 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.