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Dividend pay day for AGL – is its share price in the buy zone?

AGL Energy Ltd (ASX: AGL) will pay its dividend to shareholders today – but is Australia’s largest energy company a ‘buy’ at $21.98 per share?

How much did AGL pay out to shareholders?

In its announcement last Monday, AGL announced a total dividend of 55 cents per share (cps), franked to 80%. On a pro-forma basis, this represents an annualised dividend yield 5.00% at its current $21.98 per share valuation.

The company also provided an update on its dividend reinvestment plan (DRP) giving investors the option to invest at a DRP price of $21.50 per share, limited to shareholders in Australia, New Zealand, the UK, USA, Japan, Singapore and Hong Kong.

What else did AGL announce today?

AGL also released its 1H19 Chairman’s letter to shareholders and discussed several key issues impacting the company.

The AGL Board recently appointed its CEO and Managing Director Brett Redman on a permanent basis and he intends to focus on key strategic priorities focusing on growth, transformation and social license including:

  • Accelerating growth to meet evolving consumer needs (i.e. $1.9 billion of new energy supply projects under construction)
  • Repositioning, refreshing and reinvigorating AGL (i.e. $400 million digital transformation program)
  • Meeting and exceeding rising community expectations (i.e. supporting vulnerable customers)

The companies recent projects or those subject to feasibility studies include:

  • Wind farms under development in New South Wales and Queensland
  • Gas-fired firming capacity under construction in South Australia
  • An upgrade to its Bayswater Power Station in New South Wales
  • Potential projects to develop new gas-fired firming capacity in Newcastle and import gas through a liquified natural gas (LNG) import jetty at Crib Point in Victoria

Management also said that the company remains on track to reach its midpoint guidance range for underlying profit after tax of $970 million – $1,070 million in a positive sign for investors.

Is AGL Energy a buy?

The AGL share price has risen 8.3% this year to $21.98 at the start of today’s trade and is up 52% in the last 5 years.

As Australia’s largest energy “gentailer” (generator and retailer), AGL is in a unique position to capitalise on the demand for energy in Australia and has been boosted by a supply-side gas shortage driving east coast gas prices higher in recent years.

The biggest concern I have surrounding AGL is its ongoing stoush with the Federal Government, with the company continuing to spar publicly over energy policy uncertainty in Australia and its decision to close the Liddell Power Station.

While energy policy remains uncertain, and the company faces regulatory risk with the ACCC hovering around the Big 3 – being AGL, EnergyAustralia and Origin Energy Ltd (ASX: ORG) – I think AGL could capitalise if a Labor Federal Government comes to power with a more renewables-friendly agenda which will encourage more long-term capex.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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