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Why I think AGL is a perfect retiree dividend share today

couple of retirement age embracing

The AGL Energy Limited (ASX: AGL) share price hasn’t been having a great time on the markets of late. Over the past month, AGL shares are down more than 10% and are going for $15.03 at the time of writing.

The catalyst for this move? Earlier this month, AGL reported its earnings for the 2020 financial year, and it wasn’t a pretty sight. AGL reported a 22% drop in profits after tax and told investors it expects things to get worse before it gets better in the coming years.

Some investors might be sceptical on AGL shares today — and for good reason. This is a share that has gone absolutely nowhere over the past 5 years. Just have a look at the share price graph below for a visual illustration:

AGL 5-year chart and pricing data | source:

Not a graph you want to see as a shareholder, that’s for sure.

Despite this stick-out-like-a-sore-thumb underperformance, I still think AGL is a perfect share for a retiree today for ASX dividend income. Here’s why.

AGL as a dividend share

In its earnings report, one of the sole pieces of good news for investors was the announcement that dividend payments would continue uninterrupted in 2020. By 25 September, AGL shareholders will have received a 47 cents per share interim dividend and a 51 cents per share final dividend this year, both franked at 80%. That is down from 2019’s 55 and 64 cents per share payouts, respectively, but a lot better than what many other ASX dividend shares have delivered in 2020 so far.

The sum of 98 cents per share in dividends for 2020 gives AGL shares a trailing dividend yield of 6.52% on current prices. That’s a far better yield than most other ASX dividend shares out there right now and runs rings around the kind of yield you could expect from a term deposit or government bond these days.

But the company also (rather unusually) announced its plans for the next few years in terms of dividends. This will be headlined by a ‘special dividend plan‘, which will involve AGL paying special dividends of up to 25% of underlying profits over the 2021 and 2022 financial years. Since AGL already has a 75% payout ratio policy, this will effectively mean the company is paying out 100% of its profits over these 2 years.

Unfortunately, these dividends won’t be coming with any franking credits attached, as AGL is instead focusing on utilising historical tax losses. But it hopes to return to paying a franked dividend by FY2023.

Foolish takeaway

I wouldn’t expect much in the way of capital appreciation along the road, but it looks as though AGL is offering a consistent dividend yield above 6% for years into the future. Because of this generous dividend policy, I think AGL shares are a perfect option for a retiree to consider today.

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Motley Fool contributor Sebastian Bowen 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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