There is a question worth offering – does the AGL Energy Ltd (ASX: AGL) share price really offer a 14% yield?
If that's the case, it would be a yield that's quite a bit higher than other blue chips like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) or Telstra Corporation Ltd (ASX: TLS).
When looking at the last 12 months of dividends and the current AGL share price, the yield does come to around 14%.
As readers may have noticed, AGL shares have declined significantly over the last year. It's actually down by 62%. So, that has significantly increased the trailing AGL dividend yield.
But the key question is, what is the next 12 months of dividends going to be?
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AGL dividend estimates
The trouble is, many analysts don't think the dividend isn't going to stay as high as it has been.
In-fact, they are expecting the dividend to be more than halved.
For example, Morgan Stanley thinks the AGL dividend is going to sink to $0.35 per share in FY22. That would mean a forward dividend yield of 6.5%.
It's the same thing from UBS, the analysts there are expecting an even lower dividend in FY22 of just $0.31 per share. This annual dividend would be a yield of just 5.75% at the current AGL Energy share price.
What's going on with the AGL dividend?
AGL Energy's dividend policy has been to target a dividend payout ratio of 75% of underlying profit after tax.
The business has been experiencing a decline of profit, so the dividend has been dropping as well.
In FY21, AGL Energy's underlying earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 18% to $1.67 billion. The underlying profit after tax dropped by 34% to $537 million which included around $90 million of insurance receipts relating to the Loy Yang Unit 2 outage in 2019.
The company experienced several headwinds in FY21 such as lower wholesale electricity prices, reduced electricity generation output at peak periods, and the roll-off of legacy supply contracts in wholesale gas.
But AGL is expecting more profit declines in FY22. Management is expecting underlying EBITDA to come in a range of between $1.2 billion to $1.4 billion. That would be a decline of 16% to 28%.
Meanwhile, FY22 underlying profit after tax is expected to be in a range of between $220 million to $340 million. This would lead to a decline of between 37% to 59%. Keeping the same dividend payout ratio, that's the level of dividend cut that shareholders may need to expect.
Profit expectations can have an important impact on the AGL share price when it comes to investor thoughts on the valuation.
Demerger
AGL continues with its demerger. The company says that it's progressing well with its plan to implement the proposed demerger in the fourth quarter of FY22, subject to various approvals.
The two businesses (Accel Energy and AGL Australia) continue to progress towards finalisation and structure of funding requirements and will adopt financial policies consistent with the maintenance of an investment grade credit rating.
