Yahoo Finance Is It Worth Considering AGL Energy Limited (ASX:AGL) For Its Upcoming Dividend?
It looks like AGL Energy Limited (ASX:AGL) is about to go ex-dividend in the next four days. Investors can purchase shares before the 24th of February in order to be eligible for this dividend, which will be paid on the 26th of March.
AGL Energy's next dividend payment will be AU$0.41 per share, on the back of last year when the company paid a total of AU$0.82 to shareholders. Last year's total dividend payments show that AGL Energy has a trailing yield of 8.1% on the current share price of A$10.1. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether AGL Energy can afford its dividend, and if the dividend could grow.
See our latest analysis for AGL Energy
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. AGL Energy reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. AGL Energy was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, AGL Energy has increased its dividend at approximately 3.3% a year on average. Earnings per share have been growing much quicker than dividends, potentially because AGL Energy is keeping back more of its profits to grow the business.
Remember, you can always get a snapshot of AGL Energy's financial health, by checking our visualisation of its financial health, here.
To Sum It Up
Is AGL Energy worth buying for its dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall, it's hard to get excited about AGL Energy from a dividend perspective.
So if you want to do more digging on AGL Energy, you'll find it worthwhile knowing the risks that this stock faces. Our analysis shows 3 warning signs for AGL Energy that we strongly recommend you have a look at before investing in the company.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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