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3 reasons AGL Energy Ltd has a bright future

As one of Australia’s oldest companies – AGL Energy Ltd (ASX: AGK) was responsible for turning on the first gas street lamp in Sydney in 1841. Shareholders in this integrated energy company do enjoy the reassurance that they own a company which provides essential services that are unlikely to become obsolete anytime soon.

Despite the critical nature of AGL’s services, since the listing of its shares in their current form in late 2006 the share price performance of AGL has been underwhelming with a gain of just 1.6%, compared with a gain of nearly 6% from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

While the lagging share price has no doubt been annoying for shareholders, here are three reasons why the future prospects for AGL look bright.

1)      AGL is one of Australia’s leading renewable energy companies and the largest private owner, operator and developer of renewable generation assets. Despite all the confusion over carbon taxes and renewable energy targets the long-term future demand for renewables should be significant. AGL is arguably the company best placed to benefit from this trend.

 

2)      With AGL expected to pay a total dividend this year of 63 cents per share, shareholders are enjoying a fully franked yield of 4% which is not only maintainable and dependable, but which is also forecast to grow.

 

3)      AGL has recently acquired the assets of Macquarie Generation from the NSW Government. This purchase substantially increases its ability to compete against rivals Origin Energy Limited (ASX: ORG) and Energy Australia in the NSW retail market. Whilst there is some ongoing regulatory risk to this acquisition, an ultimate purchase would likely be a major positive for future earnings growth.

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Motley Fool contributor Tim McArthur owns shares in Origin Energy Ltd.

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