It hasn't been a great month for the AGL (ASX:AGL) share price

The woes continue for Australia's largest energy retailer.

| More on:
sad person with light bulb, electricity, power company share price drop, fall, slump, decrease

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

sdf

The AGL Energy Ltd (ASX: AGL) share price continues to set record lows as we head into the remainder of 2021.

AGL shares are now exchanging hands at $7.52, a 2.4% dip into the red from the market open.

Today's dip extends the previous 1 month's loss of ~16% and the previous 12 months' loss of 55%.

Let's take a look at some of the headwinds AGL shares have faced lately.

Planned demerger

AGL started the month on the back foot after provided an update on its planned demerger back on 30 June.

AGL explained that it will create two separate listings from the demerger: AGL will become Accel Energy. It will then form a new company, AGL Australia.

The plan will complete the work to spin off its coal-fired power plants to Accel, which will retain these under the new structure.

AGL Australia will then focus its priorities as the largest power retailer in Australia.

Considering AGL is labelled as Australia's top emitter of "scope 1 greenhouse gases", it is pursuing a strategy to compete with the emergence of renewables.

AGL chair Peter Botten was quoted saying in the announcement:

The impact of recent challenging market conditions on our financial performance emphasises that AGL Energy is not at an inflection point as the transition of the energy sector accelerates.

Shareholders will go to vote on the proposal later this year, with the company aiming to complete the demerger by Q4 if successful.

Guidance downgrade

AGL also withdrew its FY22 guidance amid the ongoing uncertainties with the planned demerger.

Regarding the coming financial year, it estimates a "material step-down" in earnings on a backdrop of "lower wholesale electricity prices".

It states these prices have been low for the last 2 years and are only now to be realised by the company.

Suspension of dividend

Regarding its dividend, AGL will be terminating its special dividend program to "preserve ~$400 to $500 million in cash within AGL prior to execution of the demerger".

Analysts are not viewing AGL's dividend prospects highly, with an overall negative sentiment.

The company has paid dividends per share of 92 cents over the last 12 months, implying a current yield of 12.2%.

This has crept up from 11.7% on 26 July when AGL shares had set a new record low at $7.87.

However, there is an inverse relationship between share price and dividend yield. If price goes down, yield goes up, and vice-versa.

The Motley Fool encourages investors to consider the concept of a "value trap". This is where a high and increasing dividend yield is masking a depreciating share price.

Investors who are chasing yield buy on the increasing dividend yield for a particular company, believing they have nabbed a bargain.

However, the prospect of total return is then hindered by poor performance from the underlying share price.

Such is the case with AGL shares given the rapid decline in share price over the previous 12 months, which has propped up the dividend yield.

Since it announced it would slash its dividend, AGL shares have sunk firmly into the red by 17%.

Foolish takeaway

The AGL share price has underperformed the S&P/ASX 200 Index (ASX: XJO) by a considerable amount this month. The broad index has posted a return of 1.16% over the last month versus AGL's loss of ~17%.

It stands to reason the demerger proposal has been a major catalyst for AGL's share price depreciation over the past month.

This, coupled with the dividend, has seen AGL shareholders continue to realise record low share prices, which offset the attractiveness of the dividend yield.

The demerger narrative certainly isn't over for AGL, with shareholders yet to fully vote on a resolution on the matter.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.
Broker Notes

3 of the best ASX stocks to buy now with $2,500

These shares are highly rated by the team at Bell Potter.

Read more »

Man smiling on top of rocks with mountains in the background.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors were in a nervous mood today.

Read more »

A man in suit and tie is smug about his suitcase bursting with cash.
Broker Notes

2 big-name ASX 200 shares brokers rate as top buys

Let's see which shares could be in the buy zone right now.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Top brokers name 3 ASX shares to buy today

Here's what brokers are recommending as buys this week.

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Block, Catalyst Metals, Coronado Global, and Pilbara Minerals shares are falling today

These shares are having a tough time on hump day. But why?

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Share Gainers

Why Beach Energy, Boss Energy, Cochlear, and Light & Wonder shares are pushing higher

These shares are having a good time on hump day. But why?

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Mergers & Acquisitions

Guess which ASX 300 stock is jumping 7% on merger news

This struggling company could be close to merging with a rival.

Read more »

a man in hard hat and high visibility vest talks into a walky-talky device in the foreground of a freight train at a railway yard.
Share Market News

What does the new BHP contract means for Aurizon shares?

This broker sees upside based on a new deal between Aurizon Holdings and BHP. 

Read more »