Several things might catch your eye when you look at the AGL Energy Limited (ASX: AGL) share price as it stands right now. Yesterday, AGL shares closed at $8.06 apiece.
The first thing that might jump out at you from looking at that share price is how it's at the same level it was back in mid-2004.
The second thing that might catch your eye is how AGL is now down more than 71% from its last share price peak back in April 2017.
But the third, and perhaps most intriguing, thing one might notice is the trailing dividend yield on AGL shares. It is now sitting at a very eye-catching 10.2%.
Can AGL shares really be offering a 10.2% yield right now? The more sceptical investors out there might be screaming 'dividend trap' at that number. So let's dive in.
A 10.2% dividend yield?
Yes, AGL shares do indeed have a trailing yield of 10.2% at the time of writing. This comes from the last two dividends AGL shareholders received over the past 12 months. The first was a final dividend of 51 cents per share investors were paid on 25 September last year.
The second was the 41 cents per share dividend that was doled out on 26 March 2021. That consisted of an interim dividend of 31 cents per share, and a special dividend of 10 cents per share. In fact, including this special divided pushes AGL's trailing yield even higher, from 10.2% to 11.46%.
Don't get too wedded to this high yield though.
The 'special' part comes from AGL's commitment to pay out 100% of its underlying earnings as dividends (up from 75%) that was announced last year. It isn't to last though, with the company cancelling this arrangement 3 weeks ago to shore up cash reserves for its upcoming demerger.
Still, even without these special dividends going forward, a 10.2% AGL share price yield is nothing to sneeze at. Especially in these near-zero-interest-rate times. So can investors expect this yield to be forward as well as trailing?
Well, as mentioned earlier, AGL employs an earnings target method of 75% of underlying earnings to be paid out as dividends. So its dividends are directly correlated to the earnings it brings in. In this light, AGL's most recent guidance won't get too many investors excited.
Is the AGL share price a dividend trap?
On 30 June when AGL announced its special dividends would be cancelled, it also announced that it expects a "material step-down in earnings [for FY2022] as a result of the lower wholesale electricity prices of the last 2 years now being realised".
Not a good omen for future dividends. Its payout history wouldn't exactly fill investors with certainty and confidence either. The 92 cents per share it has paid out over the past 12 months pales against the previous two dividends that amounted to $1.15 in dividends per share. In other words, they have already been going backwards.
AGL hasn't exactly laid out what its future dividends will now look like. But investment bank and broker Goldman Sachs has taken an educated guess.
Goldman is anticipating that AGL's dividends will likely decline further over the next few years. It estimates AGL's payouts will reach an estimated 47 cents per share by FY2023. That would imply a forward FY23 yield of 5.85% on the current AGL share price.
